PE investment in India plunges to its lowest since 2017

07, Jul. 2020

Photo by Karolina Grabowska from Pexels
Photo by Karolina Grabowska from Pexels

By Atul Ranjan

NEW DELHI, NNA - Private equity (PE) investment in India in the second quarter has slumped to its lowest level since 2017.

PE deals tanked to $1.4 billion in the April-June quarter, after a steep descent from a record $5.9 billion achieved in Q1 of 2019, according to data released by financial market data provider Refinitiv.

Figures for the subsequent three quarters kept dropping, from $4.1 billion in Q2 to $3.3 billion in Q3, and then to $2.8 billion in Q4.

The first quarter of 2020 seemed to have shown a recovery with $3.7 billion, but the worsening coronavirus pandemic coupled with global lockdowns have dashed hopes.

Q2 2020 performance also represented a sharp fall of 65 percent from the $4.1 billion registered a year ago.

PE investments in the first half of the year added up to about $5.2 billion, or a 48 percent decline from the $10 billion made during the corresponding period of 2019.

In any case, the top three performers were internet, computer software and financial services. They brought in $2.4 billion, $1 billion and $900 million respectively, according to Refinitiv.

The data excludes pending deals or acquisitions such as recently announced investments for India’s rising digital firm Jio Platforms Ltd., venture capital partnerships and deals in the realty sector.

As investors have become more cautious amid the worsening pandemic, Indian startups facing a fund crunch are struggling to survive.

According to a recent survey, only 22 percent of Indian startups have cash reserves to meet fixed cost expenses over the next three to six months while 12 percent have already shut down.

The survey was jointly conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Indian Angel Network (IAN).

A third of startups surveyed said investors have put their decisions on hold, while 1 in 10 revealed that deals had been called off.

A whopping 96 percent of investors said investments in startups have been impacted by the pandemic which saw travel lockdowns throughout the world.

Around 92 percent warned that startup investments would continue to be low over the next six months.

Besides 250 startups, 61 incubators and investors also took part in the survey.

“The startup sector is stressed for survival at the moment. The investment sentiment is also subdued and is expected to remain so in the coming months,” Dilip Chenoy, secretary general of FICCI, said in a statement.

“Lack of working capital and cash flows may lead to major layoffs over the next three to six months by startups. The survey indicates that the Indian startups need an enabling ecosystem and flow of funds to continue operations,” he said.

In March this year, NNA reported that the majority of Indian startups which subsequently earned unicorn status have been funded by Chinese tech investors.

As many as 18 of the 30 unicorn companies in India are Chinese-funded, according to a think tank.

Further Chinese investments have now come to a halt following a row between the two Asian giants.

India has now put 50 investment proposals by Chinese firms under scrutiny despite both countries pulling back forces to deescalate the situation after a deadly border clash between their troops recently.