India’s IT/ITES, consumer tech and healthcare sectors are expected to attract heavy private equity (PE) investments this year, followed by the financial services sector, Bain & Co. India Private Equity Report 2021 said.
While the IT services sector is benefiting in the near term from increasing digital adoption and revenue shrinkages from high-contact industries, in the long term, investment growth will be driven by Software as a service (SaaS) and tier-2 IT services companies with capabilities in digital readiness and business, the report said.
In the healthcare industry, the initial supply chain disruptions caused by the covid-19 pandemic gave way to a surge in investor interest in API development and contract manufacturing. Growing ability of India to export to global markets as compared to China, increased domestic health awareness, rise of digital healthcare are the long-term trends in the sector that will attract investments, it said.
Investors also expect increasing interest in digitally accelerated opportunities such as digital health, fintech and ed-tech, the report added.
“On consumer/retail, we expect moderate recovery in non-essentials/discretionary (especially durables) and future growth to be driven by organized and D2C brands after the pandemic. Manufacturing too will witness a moderate uptick from global sourcing shifts and Atmanirbhar Bharat programme,” said Arpan Sheth, partner at Bain & Co.
According to the report, environmental, social, and governance (ESG) issues are rapidly gaining attention with PE investors, with over 90% of firms planning to increase efforts. This is driven primarily by LP (limited partners or investors in a PE fund) mandates, shifting mindsets among both talent and consumer pools, and a recognition of the financial returns in the ESG sector, it added.
“There is growing confidence in financial returns of ESG deals, with returns exceeding or on par with other sectors. In a recent survey of investors, nearly 45% associated ESG with good financial results compared to 35% the previous year. In this context, multiple large global GPs are announcing net-zero commitments for funds and portfolios globally,” said Aditya Shukla, partner at Bain & Co.
On the exit side, the report noted that exit value slowed by 30% as owners held on to assets amid the slowdown in the second and third quarter, while portfolios also contributed by not reaching full maturity levels in 2020.
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