Private capital AUM has reached Rs. 10.50 lakh crore

According to a report by Indian Venture Capital Association (IVCA) on private capital in India, the AUM of India-based private capital funds AUM is t Rs. 10.50 lakh crore in December 2023. The AUM of private capital funds has more than tripled in the last 15 years.

The report also sheds light on the current state, growth drivers and main challenges for the five main segments of the private capital market in India: venture capital funds (VCF), private equity, private debt, real estate and infrastructure.

Here are the highlights of the report.

Venture capital funds

Venture capital funds AUM has grown eight times from Rs. 46400 crore in 2010 to Rs. 3.80 lakh crore in 2023. The proportion of VC funds in total private capital AUM of India has also increased to 36% in 2023 from 14% in 2010.

Number of India-focused VC deals has decreased from 2249 in 2021 to 961 in 2023. Aggregate deal value has also decreased from Rs. 3.40 lakh crore to Rs. 1.16 lakh crore in this period.

When it comes to number of exits, the number has declined from 2021 in 2022 but has then remained stable in 2023. The exit value in India is at Rs. 38,800 crore annually in 2023.

While discussing the factors driving India’s exit market, Lavanya Ashok, General Partner - Growth Equity, Trifecta Capital said that structural changes have led to the growth of the exit market across all channels. This includes strong growth of public equity indices due to retail investment in the Indian markets and increasing focus of global private equity and sovereign wealth funds.

She recommends consumer, fintech, SaaS (Software as a Service) and climate tech sectors for VC investors, which can offer growth opportunities in the future.  

The biggest challenge for VC remains global macroeconomic challenges which have led to a more cautious sentiment among investors in recent years, said the report.

Private equity

Indian private equity has remained resilient despite weak investor sentiment globally and persistent macroeconomic headwinds. While Indian private equity AUM has grown 210% from 2010 to 2023, India’s private equity deals increased from 141 in 2022 to 153 in 2023.

Exits in private equity has also increased from 49 in 2022 to 85 in 2023. 46 exits have been recorded in 2024 till June. This has been majorly due to strong performance of India’s public markets.

While talking about the growth of private equity in India, Aditya Joshi, Managing Partner, Brookfield Asset Management said that a stable government and consistent policy framework have created a favorable environment for long-term investments. He feels that strong domestic consumption and robust nominal GDP growth has driven demand for capital to support Indian companies. He also adds that India’s scale and long-term economic stability make it an emerging market with potential for strong returns.

He also believes that going forward, the biggest challenge in private equity investment will be to find high quality investment opportunities at attractive valuations.

Private debt

Private debt AUM has grown about 26x from Rs. 5,900 crore in 2010 to Rs. 1.50 lakh crore in 2023.

Currently, there are 44 India-focused private debt funds in the market with an aggregate capital target of Rs. 84,400 crore.

Vineet Sukumar, Co-founder and MD, Vivriti Asset Management feels that better access to corporate data like GST records and credit histories, financialization of savings and taxation reforms in debt AIFs has led to the growth of private credit in India. When it comes to foreign investors investing in private credit in India, he believes that choosing the right and less restrictive investment route like International Financial Services Centre (IFSC) and finding the right asset manager with local expertise who can manage the regional economic differences and maximize investment success are the biggest challenges. 

He recommends investors to do their own assessment of potential borrowers using external sources and conduct thorough on-ground visits of companies to assess their credit quality.

When it comes to sectors for investment, Vineet thinks that sectors related to consumer demand like discretionary consumer goods and retail financing are showing signs of stress. Private credit managers are now moving towards sectors with stable cash flows like business services and healthcare.

Real estate

While the real estate sector in India has always offered scale to its investors, it is now also offering stability. India’s real estate funds AUM has grown from Rs. 1.10 lakh crore in 2010 to Rs. 1.80 lakh crore in 2023. A stable economic and regulatory environment, supported by key reforms such as the introduction of the GST and the establishment of a formalized insolvency and bankruptcy framework have helped institutionalize the real estate market and make it more attractive to investors.

Ashish Singh, Partner, Actis Capital believes that urbanization, middle class creation, focus on consumption and relatively modest leverage and healthy balance sheets have led to increase in demand of real estate in India. When it comes to supply of real estate, he thinks that there is still shortage of sufficient stable, long-term institutional players which has left gaps for entry of new players.

He believes that retail and hospitality, warehousing and industrials and alternative sub-sectors like co-working, co-living, student housing, rental housing, real estate and hospitals offer the highest growth opportunities in the real estate market. He cites limited land availability, complex approval processes as the big challenges for the sector.

Vipul Roongta, MD & CEO, HDFC Capital Advisors believes that affordable and mid-income housing will be a theme which will play out over the next 20 years. He attributes the rise in demand for real estate to rise in per-capita income and rising aspirations to acquire property. He also believes that government’s support to new homes presents a significant investment opportunity. He cites purpose-built worker accommodation, low development of affordable properties and lower participation of large developers in making such properties in urban regions as the biggest challenges for real estate in India.

Infrastructure

India’s infrastructure sector has seen significant growth in recent years due to developmental needs, increased participation from private capital and government spending. The government has also set a capital expenditure target of Rs. 11.20 lakh crore in the 2024 financial budget. This would require Rs. 1.70 lakh crore from private capital players.

The AUM of infrastructure private capital funds is at Rs. 73,400 crore in 2023. Number of infrastructure deals in India has decreased from 139 in 2022 to 92 in 2023. In 2024, there have been 77 deals as of June. The total deal value is at Rs. 1.20 lakh crore in 2023 and has crossed the mark of Rs. 80,200 crore in 2024 as of June.

Anonymous experts who shared their views on the sector believe that overseas investors have great interest in resale of existing operating assets sold by the government to raise capital for creating new facilities.

They also feel that on-ground presence is essential to navigate the local context in the dynamic infrastructure market, do a thorough due diligence and navigate complexities such as ESG compliance and ethical considerations. They feel that renewable energy, especially solar energy, has high growth potential due to government’s focus on decarbonization and goal of establishing high renewable capacity by 2030.