The pace of private equity transactions has picked up in India, but uncertainty over taxes poses a stumbling block to pricing, valuation and exits, senior officials at PricewaterhouseCoopers said.
Besides traditional private equity funding, private credit, where global firms seei opportunities, is also making its appearance in India. However this is still nascent.
PE trends
Private equity investments in India fell 38 per cent on-year to $33 billion in calendar 2023, the lowest level in the last six years, according to data from PwC. In terms of deals, the number fell to 791 last year from 1,415 in 2022 and 1,531 in 2021.
However, the average size per deal increased 10 per cent to $46 million in the year.
A distinct trend that has emerged is that the technology sector is attracting less interest, while others such as pharma and life sciences, retail and consumer is attracting more capital. Though technology continued to be the top invested sector, its share has fallen considerably, to 23 per cent in 2023 from 43 per cent year ago.
Late-stage funding and buyouts accounted for a major share of the funding in terms of value, while in terms of volumes it was early and growth stage investments.
PE exits increased by a fourth in 2023 from a year ago, with a 16 per cent rise in the deal value of the exits. The year saw record exits through public market sales, with a sharp uptick to 51 per cent in 2023, from 35 per cent in 2022. Big ticket exits of over $20 million in the last two years were largely driven by public market sales and strategic sales.
Many portfolio companies funded by PE firms were preparing for IPOs and over the next 18-24 months, there are likely to be several large IPOs, said Bhavin Shah, Partner and private equity leader at PwC.
Private Credit and Tax uncertainty
Most private equity funds in India are also willing to provide debt solutions, said Shah, pointing out that not everybody wouldneed equity.
Increasingly, global PE firms are looking at the possibility of providing credit in India, as the returns are seen as attractive. There are few credit funds in India currently, but this could change in the near future.
Tax uncertainty, however, continues to dog PE firms and investors. For instance, the issue of imposing tax on capital gains by Mauritius-based funds, which continues to be a contentious issue and subject to intervention by courts regularly.
Shah said PE firms are not averse to paying taxes, but they need to be told upfront so that they can price it in their deals. Uncertainty on this front is a stumbling block, especially when they have to exit investments in India.