The year 2021 marked an exceptional year for global private equity markets, witnessing a 54% year-over-year growth, riding on abundant dry powder and tectonic shifts in business models. With a frenetic second half (H2) in 2021, which experienced a bullish market, India demonstrated strong recovery and saw deal values touch a record high of $70 billion in annual deal values. Stepping into 2022, a bearish sentiment has set in as markets face global headwinds such as runaway inflation, tightening monetary policy, supply chain disruptions, geopolitical uncertainties, and climate change concerns. India has bucked the downtrend with PE-venture capital (VC) deal values of more than $40 billion achieved till August 2022, but a further softening of pace is in order.

In the volatile investments market, even though the deal count has reduced, the first half (H1) of 2022 saw approximately $34 billion in deal value at a 25% growth over the same period last year with $27 billion. However, this pales in comparison to the deals in H2 2021, the previous half year and an all-time bull run for Indian private equity, which saw $43 billion in deal value. H1 2022 has seen an expansion across the total deal value of small (<$200 million) and midsized deals (<$1 billion), reducing the share of the top 15 deals in the total deal value from 33% in 2021 to 27% in 2022. At the same time, this half year has witnessed the lowest share of blockbuster deals (worth $1 billion or more) since 2020, with just two such deals in the year so far, in comparison with 2020’s Jio/Reliance megadeals worth $27 billion and last year’s 11 blockbuster investments.

Specifically, PE investments expanded this year till August over the same period in 2021—with $26 billion vis-à-vis $22 billion of investments. Buyouts have slowed at $6.7 billion or 26% of total PE value so far, against $16 billion in buyout value in 2021.

VC and growth equity activity has also tempered over 2021, with $15 billion unlocked so far compared to $25 billion between January and August in 2021. However, the investments seen till August this year have already surpassed all annual activity pre-2021—again reinforcing the idea that Indian VC and growth equity is undergoing a phase transition post 2020. This is further vindicated by the fact that the average VC and growth equity cheque sizes continue to stay at $24 million, maintaining the two-times growth unlocked in 2021 over previous years.

Banking, financial services, and insurance (BFSI) and real estate and infrastructure show resurgence this year, and together account for almost $11 billion of investments so far. Media and entertainment has also seen some marquee deals this year, and Indian software and software as a service (SaaS) companies continue to court investor interest. The sectors of consumer technology and information technology (IT) slowed down over their extreme exuberance last year, which saw them account for nearly 60% of total deal value in 2021. Investors doubled down on BFSI, with notable investments in Yes Bank, IDFC Asset Management, and IIFL Wealth Management. IT and IT-enabled services also saw large deals across CitiusTech and IGT Solutions. Software and SaaS activity was led by Securonix’s $1 billion deal with a consortium of investors such as Vista Equity Partners, Eight Roads, and Wipro Ventures. Real estate and infrastructure saw multiple assets exchanging hands, with the buyout of Welspun Enterprises by Actis being one of the largest deals in the sector.

Exit momentum has kept pace eight months into 2022, with a total exit value of $22 billion in more than 190 exits despite concerns of a slowdown. The period saw KKR’s exit of Max Healthcare, worth $1.2 billion in a large stake sale on the open markets, and Delhivery exit by SoftBank, Carlyle, and Fosun, worth nearly $1 billion via initial public offering. Baring’s exit of CitiusTech, worth approximately $960 million, and AION’s exit of IGT Solutions, worth close to $800 million, were large secondary sales. Shell acquired Sprng Energy from Actis for $1.5 billion, and Blinkit was acquired by Zomato for $560 million.

The inflationary trends in developed economies, continued fed rate hikes, and brewing global crises have demolished investor confidence in most markets and are giving credence to recession forecasts. In the midst of this sentiment, India’s strong showing in 2022 has surpassed investor expectations both in the PE and VC markets and continues to show the underlying strength of Indian assets. However, global volatility is expected to hit the investment momentum in India further in the coming months as a cocktail of global headwinds refuse to recede and we enter a long winter.