Infrastructure, real estate seen driving PE/VC deals in India in 2019

2018 saw an all-time high of $35.8 billion worth of PE/VC deals, a sharp rise from the previous best of 2017's $26.1 billion. (Vipul Sharma/Mint)

If 2018 was a record breaking year for private equity (PE) and venture capital (VC) deals, 2019’s expected to be even better, powered by a surge in infrastructure and real estate investments, said a report by auditing and consultancy firm EY.

Real estate and infrastructure attracted $6.3 billion worth of investments in 2018, led by a number of buyouts by marquee investors such as KKR, Brookfield and CPPIB. In 2017 and 2018, sovereign wealth funds and pension funds stepped up their investments in Indian infrastructure and real estate, investing close to $3.5 billion of the total $12.2 billion invested in these asset classes during this period, according to the report. The growth was primarily driven by investor interest in yield-generating commercial assets.

Five of the top 10 investments in real estate in 2018 were in commercial realty. The government’s focus on bringing in enabling reforms such as the Real Estate (Regulation and Development) Act, 2016, has bolstered the confidence of both consumers and investors. Investors such as Canadian pension funds CPPIB and CDPQ, who generally invest as limited partners (LPs) in a PE, are increasingly focusing on investing directly. This is leading to growing investments in these steady yield-generating assets, said the report titled India Trendbook 2019.

Annual PE/VC investments in India are expected to exceed $65 billion by 2025, assuming a gross domestic product (GDP) growth of the economy at 7% year-on-year, between 2019 and 2025, according to EY’s estimates.

“There is a good chance that annual Indian PE/VC investments in 2025 can exceed $65 billion, accounting for 1.44% of the projected GDP in 2025. This translates to a compounded annual growth rate (CAGR) of 9.2% p.a. for Indian PE/VC investments during the period 2019-2025,” said the report.

The performance of global and Indian private equity markets has a correlation, mirroring the situation in equities, the report said.

Global PE/VC investments across asset classes crossed $1.4 trillion, increasing by 6.8% over 2017 levels and surpassing even the highs of 2007, amid fervent dealmaking before the financial crisis. Similarly, 2018 saw an all-time high of $35.8 billion of investments, a sharp rise from the previous best of 2017’s $26.1 billion. Indian and global investments were driven by mega deals (of more than $1 billion), increasing dry powder (uninvested capital), and rising average deal sizes.

“However, on the matter of PE/VC-backed exits, which went up 2X (globally) in 2017 and 2018, the Indian market has broken correlation with its global counterparts, which since the last 3-4 years have remained flat,” the report said.

“2018 has been one of the best years for PE/VC investments and exits…2019 has also started on a strong note, with $11.4 billion of investments in Q1 eclipsing the previous Q1 high (2018) by 37%,” said Vivek Soni, partner and national leader for private equity services at EY India. India ranks among the most attractive emerging markets for general partners and this continued fondness for India by LPs, coupled with the record levels of dry powder raised/being raised globally, is very positive for the PE/VC industry, he said.