Financial Investors Group
HOW WILL PRIVATE DEAL MARKETS EVOLVE IN 2022?
07 Sep 2022
Despite
the challenges of COVID-19, India saw an increase in private deal activity in
2021. Over 1,000 venture capital (VC) and private equity (PE) projects were
completed, totaling nearly US$ 74B in FDI. Meanwhile, the industrial policy
reforms' production-linked incentives (PLI) framework has generated positive
buzz, demonstrating India's intention to close gaps in its manufacturing
ecosystem through private-sector investment. At the same time, many family
businesses have begun to act more like venture capitalists in recent years. To
invest in the future, they are developing their in-house capabilities. However,
digital investments will dominate the private market, with a visible impact in
all sectors. Industries that will be the focus of private equity projects:
Rise
of FinTech & Financial services
The
FinTech (financial technology) industry has grown tremendously during the
pandemic, and the rapid adoption of digital payments has only aided in
propelling the drive to the next level. The Unified Payments Interface (UPI) of
India has become one of the most popular real-time payments (RTP) systems,
providing convenience, safety, and security in person-to-person (P2P) and
person-to-merchant (P2M) transactions. It's not surprising that neighboring
countries like Nepal, Bhutan, and Singapore have expressed interest in UPI.
India currently has the world's highest FinTech adoption rate of 87 percent,
significantly higher than the global average of 64 percent. As a result, the
outlook for FinTech players continues to be bright in 2022.
Fueling
the transition to green energy
With
PE deals expected to remain bullish in FY23, more buyout and control
transactions will likely involve private equity firms. Furthermore, as companies
and private equity funds increase their commitments to reduce carbon emissions,
more capital will be mobilized to transition to greener energy sources, opening
new opportunities for mergers and acquisitions (M&A).
High
demand for SaaS
The
rise of Software-as-a-Service (SaaS) has dramatically transformed the software
industry and opened it up to a slew of new players. As the need for talent and
technological innovation remains high, new business models inspired by SaaS are
emerging, such as Platform-as-a-Service (PaaS), Robotics-as-a-Service (RaaS),
and Data-as-a-Service (DaaS). The domestic market for SaaS in India will be
more than double - specifically, it will be US$ 30B by 2025.
Transforming
education with AR/VR
After
the pandemic, India has seen large-scale deployments of augmented reality (AR)
and virtual reality (VR) across business verticals. Technology has taken over
education from skill-building programs in universities and real-world technical
training to school-based learning of abstract concepts. The education industry
is expected to spend more than US$ 6B per year on augmented and virtual reality
technologies by 2023.
Investors
eye deep tech startups
India
is the next deep tech hotspot, with multiple industries such as healthcare,
education, industry, and manufacturing, increasingly integrating technology
into their operations. Deep tech refers to activities based on engineering and
scientific innovations like artificial intelligence, robotics, quantum
computing, and blockchain. Investment firms have been increasingly identifying
and funding deep tech startups.
Transforming
the AgriTech sector
The
Indian government's goal to strengthen the agriculture sector through modern
technological interventions and investment incentives are commendable. Its
startup fund for agricultural technology (AgriTech), supported by the National
Bank for Agriculture and Rural Development (NABARD), is expected to set up the
offshore private equity and venture capital industry onshore and boost
startups. The Agritech sector looks positive and will likely transform with
significant agriculture budget allocations and technology adoption.
Since
the private deal market experienced strong growth during the K-shaped recovery
of the economy impacted by the pandemic last year, hopefully, it will be able
to keep up the momentum and live up to the immense expectations and perform
better with tech-based startups in 2022.
Author: Madhur Singhal, Managing Partner and CEO, Praxis Global Alliance