Domestic Investment in India: Market Activity, Government Initiatives & Growth Prospects | IBEF (2024)

Introduction

Market Activity

India's economy showed great signs of recovery in FY22 after the COVID-19 pandemic. India’s nominal gross domestic product (GDP) at current prices is estimated to be at Rs. 301.75 trillion (US$ 3.62 trillion) in 2023-24. Additionally, the Nominal GDP at current prices in Q1 of 2023-24 was Rs. 70.67 trillion (US$ 848.92 billion), as against Rs. 65.42 trillion (US$ 785.85 billion) in 2022-23, estimating a growth of 8%. Real GDP at constant prices (2011-12) in the first quarter of 2023-24 is estimated at Rs. 40.37 trillion (US$ 484.94 billion), showing a growth of 7.8% as compared to the first quarter of 2022-23 estimated at Rs. 37.44 trillion (US$ 449.74 billion). These figures make India the fastest-growing major economy in the world, and this economic growth has translated to the domestic investment market in India. Retail investors, mutual funds, and PE/VC firms have all stepped up their domestic investments in the Indian market.

Retail and High Net-worth Individual (HNI) investors' and domestic institutional investors (DIIs) combined share, which includes domestic mutual funds, insurance companies, banks, financial institutions, pension funds, etc., reached an all-time high of 25.50% as of June 30th, 2023. In the Q1 (April-June) of 2023, Domestic institutional investors (DIIs) invested a record sum of US$ 405.24 million in Indian equities.

The share of retail investors in equity holding listed on the National Stock Exchange (NSE) reached an all-time high of 27% year-on-year (YoY) in (April-August) 2023. According to BSE, the number of registered investors on BSE has jumped nearly 24% year-on-year. In 2022, a YoY rise of over 40% in the number of BSE-registered investors in states like Arunachal Pradesh, Bihar, Uttar Pradesh, Assam, Nagaland, Mizoram, Meghalaya, Tripura, Odisha, Madhya Pradesh, Jammu and Kashmir, and Himachal Pradesh. In Q1 of 2023, retail holding went up in 908 companies listed on NSE. As on June 30th, 2023, the value of retail holdings was only Rs. 21.69 lakh crore (US$ 260.97 billion).

Around 130 SME companies went public in 2023 (till October 2023), raising a total of Rs. 3,540 crore (US$ 426.33 million) through IPOs.

The share of domestic Mutual Funds (MFs) in companies listed on the NSE increased and reached an all-time high of 8.64% on June 30th, 2023, up from 7.24% on June 30th, 2022.

India's Private Equity (PE)/Venture Capital (VC) investment environment is also scaling new heights, with increases in deal size, deal activity, and fundraising, as well as improvements in term sheets and benchmarking practices. Private Equity-Venture Capital (PE-VC) funds invested US$ 6 billion (across 139 deals) in India-based companies during the quarter ended September 2023. 1,261 deals were recorded of more than US$ 46 billion of Private Equity (PE) – Venture Capitalist (VC) investments in 2022.

Investments/developments

In many ways, the year 2021 was a turning point for the Indian economy as initiatives like Atmanirbhar Bharat sped up the formal implementation of several production-linked incentives (PLI) schemes. There was also a push to negotiate comprehensive free trade agreements successfully negotiated with Australia and the UAE. This has led to a huge quantum of domestic inflows coming into the Indian market and making it resilient amidst global uncertainties. With the improving economic scenario, there have been quite a few investments in various sectors in India. Some of them are as follows:

• According to the IVCA-EY monthly PE/VC roundup, August 2023 recorded investments worth US$ 5.2 billion.
• In August 2023, growth deals valued at US$ 2.4 billion were the highest across 14 deals. PIPE investments recorded US$2.1 billion across 18 deals in August 2023.
• Infrastructure was the top sector in August 2023, backed by GQG Partners Inc. in Adani Power Limited, recording US$ 1.8 billion in PE/VC investments across six deals. Retail and consumer products was the second largest sector with US$ 1 billion recorded across four deals.
• In October 2023, NCLT approved resolution plan of Himadri Speciality Chemical and Dalmia Bharat Refractories to acquire Birla Tyres.
• In October 2023, Tata Motors acquired 27% in digital platform Freight Tiger.
• In October 2023, Bajaj Finance acquired 26% stake in Pennant Technologies for Rs. 267.50 crore (US$ 32.18 million).
• In September 2023, Shree Renuka Sugars has inked a share purchase agreement to acquire 100% stake in Anamika Sugar Mills.
• In September 2023, Reliance Retail Ventures acquired majority stake in Alia Bhatt’s Ed-a-Mamma brand.
• In August 2023, Jewellery retailer Titan acquired another 27.18% stake in CaratLane for Rs. 4,621 crore (US$ 556.01 million).
• In July 2023, Bikaji Foods International acquired a 49% stake in Bhujialalji for US$ 6,21,946.53.
• In July 2023, India's leading telecom firm, Bharti Airtel acquired an additional 20.6% stake in the SD-WAN startup, Lavelle Networks.
• In July 2023, Adani Enterprises acquired approximately 30% ownership in Start Enterprises Pvt Ltd (SEPL), the parent company of Trainman, an online platform for booking train tickets.
• In June 2023, Tata Communications is set to acquire US-based enterprise messaging firm Kaleyra for US$ 100 million in an all-cash deal.
• In June 2023, Asian Paints acquired an additional 11% stake in White Teak.
• In May 2023, JSW Steel acquired National Steel and Agro Industries for US$ 75.73 million.
• In February-April 2023:
  • PhonePe, India's most valuable payments firm with an estimated value of US$ 12 billion, has raised US$ 650 million across four tranches from its backers, including Tiger Global.
  • The Souled Store, a direct-to-consumer (D2C) apparel brand, has raised Rs. 135 crore (US$ 16 million) in funding led by Xponentia Capital. The company’s existing investors Elevation Capital and RPSG Capital also participated in the round.
  • Agri startup Sorted, a tech platform founded by the ex-CEO of Milkbasket for quality fruits and vegetables, has raised over US$ 5 million as seed funding to grow business.
  • Electric vehicle charging infra platform CHARGE+ZONE on Monday announced raising US$ 54 million in Series A1 funding round led by global impact investment management firm BlueOrchard Finance.
  • NCR-based Industrial and Logistics real estate developer Pragati Group, has raised US$ 200 million of equity capital from a Private Equity fund based in Singapore. Pragati has been offering customized warehouse development solutions since its inception in 2010 to top MNCs like Amazon India, Flipkart, DHL-Bluedart, Bosch, Daikin, and many more.
• In January 2023:
  • Deep-tech battery startup Log9 bagged US$ 40 million from Amara Raja Batteries Ltd and Petronas Ventures.
  • On January 17th , 2023, Sequoia Capital invested US$ 15 million in CloseFactor as a llead investor.
  • Virohan, a healthcare edtech start-up raised US$ 7 million from Blume Ventures, with participation from Bharat Inclusion Seed Fund, Rebright Partners, and others.
• In December 2022:
  • A Gurugram-based battery swapping solutions provider, Battery Smart raised US$ 9.24 million from Stride Ventures.
  • A food-tech start-up, SaveEat has raised US$ 5 million from Credent Investment Pvt Ltd to expand its business operations in Mumbai, Pune, and Bengaluru.
  • Aquaconnect, an aquaculture platform bagged US$ 15 million from Lok Capital, Louis Dreyfus Company Ventures, and Suneight Investment for business expansion.
• In November 2022:
  • Energy storage solutions startup Clean Electric bagged US$ 2.2 million in a funding round led by early-stage venture capital firm Kalaari Capital.
  • Prismforce, a SaaS startup, raised US$ 13.6 million in Series A funding led by Sequoia Capital India to enhance its product suite, strengthen marketing, and grow its talent base.
  • CashKaro raised US$ 16.02 million in a Series C funding round led by Affle Global Pte. Ltd (AGPL) for the expansion of new technology and product development.
• In October 2022:
  • Shardeum, an EVM-based shared blockchain startup raised a seed round of US$ 18.28 million from 60 investors.
  • A D2C footwear start-up, Yoho raised US$ 2.46 million from Softbank Vision Fund, Rukam Capital, and Vijay Shekhar Sharma (founder of Paytm) along with participation from other investors.
  • A real estate developer, Urbanrise/Alliance Group raised US$ 31 million from Motilal Oswal Financial Services Ltd (MOPE).
• In September 2022:
  • In order to finance its expansion strategy, Solvy Tech Solutions, which operates the insurtech platform Zopper, has raised US$ 75 million from investors coordinated by Creaegis. ICICI Venture, Bessemer Venture Partners, and existing investor Blume Ventures all participated in the investment round.
  • Kotak Realty Fund has invested US$ 200 million in India’s first Real Estate Investment Authority (REIT) Embassy Office Parks REIT.
• In August 2022:
  • Device management startup Servify raised US$ 65 million in funding as a part of its pre-initial public offering (IPO) round, which was led by the Singularity Growth Opportunity Fund.
  • Private equity firm Kedaara Capital invested US$ 50 million in Oasis Fertility in exchange for sizable minority ownership in the business.
• In July 2022:
  • Digital therapeutic startup Fitterfly, which focuses on diabetes management, raised US$ 12 million in funding led by Amazon Smbhav Venture Fund and Fireside Ventures.
  • DrinkPrime, a subscription-based reverse osmosis (RO) water-supplying startup, raised Rs. 60 crore (US$ 7.5 million) in a mix of equity and debt funding. The equity component was led by Omidyar Network India, Sequoia Surge, and 9 Unicorns, while the debt came from Northern Arc Capital and Unitus Capital.
  • Content monetization platform ConsCent raised Rs. 13.26 crore (US$ 1.66 million) in a funding round led by Inflection Point Ventures.
• In June 2022:
  • Shiprocket signed a deal to acquire a majority stake in its competitor e-commerce platform Pickrr for about US$ 200 million in a mix of cash and equity.
  • India’s sovereign wealth fund, National Investment and Infrastructure Fund (NIIF) announced that it would invest Rs. 2,250 crore (US$ 282 million) to acquire around 22.5% stake in Hindustan Ports Pvt. Ltd (HPPL).
  • GetVantage, a revenue-based finance platform, raised US$ 36 million in funding led by Varanium Nexgen Fintech Fund and DMI Sparkle Fund.
• In May 2022, Ather Energy raised US$ 128 million in a Series-E funding round led by NIIF's Strategic Opportunities Fund and Hero MotoCorp.
• In May 2022, Reliance Brands Limited, a subsidiary of Reliance Retail Ventures Ltd, signed a franchise agreement to sell Italian luxury lifestyle brand Tod's products in India.
• In May 2022, the Toyota Group of Companies (constituting Toyota Kirloskar Motor and Toyota Kirloskar Auto Parts) signed an MoU with the Government of Karnataka to invest Rs. 4,800 crore (US$ 620.23 million) to build electric powertrain components.
• In the first four months of 2022 (up to April 28), M&A deals and deals in the making have already crossed US$ 105 billion, compared to US$ 44.2 billion in the first four months of 2021.
• Startup PE/VC investing in India stood at US$ 28.5 billion in 2021, a 290% YoY growth.
• Technology (US$ 16.3 billion), e-commerce (US$ 15.9 billion), and financial services (US$ 11.7 billion) accounted for 57% of the total PE/VC investments by value in 2021.
• The AUM of the PE/VC industry in India exceeded US$ 150 billion, as of 2021.
• In 2021, new sectors like edtech, electric vehicles, gaming, online streaming, and sports-based entertainment recorded significant PE/VC investment inflows of over US$ 10 billion.

Government Initiatives

With the government's focus on making business in India easier through the establishment of nation-specific offices to "handhold" foreign investment, India has advanced in recent years in the rankings for ease of doing business. The government has also attempted to rein in the aggressive tax administration through more openness and transparency. It has also taken multiple other initiatives to improve the business regulatory environment in the country and simplified the process of making domestic investments. Some of these are:

• India’s new rules for environmental, social and governance investments and ratings are likely to attract more investors to the nation’s US$ 1.4 billion market and serve as a model for other countries. Over the last two years, India has implemented many measures to regulate its market for green and other assets, most notably permitting domestic fund managers to create plans under six types of ESG strategies.
• The introduction of the Goods and Services Tax, easing liquidity problems of NBFCs and Banks, the reduction of corporate tax, improvements to the business environment, changes to the FDI policy, reduction in Compliance Burden, policies to support domestic manufacturing through public procurement orders, and the Phased Manufacturing Programme (PMP) are just a few of the actions taken by the government to encourage domestic investments.
• The National Logistics Policy (NLP) aims to decrease the cost of logistics and make it to par with that of other developed nations. A comprehensive approach to address cost inefficiencies is being laid down by establishing an interdisciplinary, cross-sectoral, multijurisdictional framework for enhancing the entire logistics ecosystem. This would bolster India's economy, provide employment opportunities, and make Indian products more competitive in the global market. It was launched on September 17th , 2022.
• The Department for Promotion of Industry and Internal Trade (DPIIT) has introduced a dynamic reform exercise called the Business Reforms Action Plan, which ranks all the states and UTs in the country based on the implementation of designated reform parameters. The reforms have focused on streamlining the current rules and procedures and getting rid of unnecessary requirements and steps. The Action Plan covers multiple reform areas such as:
• Investment Enablers
• Online Single Window System
• Land administration and Transfer of Land and Property
• Construction Permits Enabler
• Labour Regulation Enablers
• Environment Registration Enablers
• Inspection Enablers
• Paying Taxes
• Obtaining Utility Permits
• The Ministry of Labour and Employment has taken a number of steps to streamline labour laws to make conducting business easier. By condensing, combining, and rationalising the pertinent provisions of 29 Central Labour Laws, the Government has notified four labour codes: the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020, and the Code on Occupational Safety, Health, and Working Conditions, 2020.
• In order to incentivise new domestic companies to set up their manufacturing units in India, the government has extended the concessional tax rate of 15% to March 31st , 2024.
• The government introduced the India Industrial Land Bank (IILB), which is a GIS-based portal - a one-stop repository of all industrial infrastructure-related information - connectivity, infrastructure, natural resources, terrain, plot-level information on vacant plots, line of activity, and contact details.
• On April 30th, 2022, Minister of Ports, Shipping and Waterways, Mr. Sarbananda Sonowal, announced that Cochin Shipyard Limited has committed to invest an initial corpus of Rs. 50 crore (US$ 6.47 million) in startup companies engaged in the maritime sector.
• India's production-linked incentive (PLI) schemes generated investment commitments of Rs. 2.34 lakh crore (US$ 30.24 billion). Automobile and auto components, advanced chemistry cell batteries, speciality steel and high-efficiency solar panels have attracted the maximum interest.
• The government is expected to invest Rs. 1.20 lakh crore (US$ 15.5 billion) in the automobile industry in the next five years.
• The Ministry of Education (MoE) has proposed an outlay of Rs. 1,102.91 crore (US$ 142.57 million) for Punjab in FY23 under the flagship Samagra Shiksha Scheme for school education.
• Minister of Home Affairs and Cooperation, Mr. Amit Shah, inaugurated the newly constructed tourism facilities for SeemaDarshan at Nadabet in the Banaskantha district of Gujarat. The Gujarat government spent Rs. 125 crore (US$ 15.66 million) on the same.
• The Uttar Pradesh government launched projects worth Rs. 70,000 crore (US$ 8.77 billion) in the state in June.
• In April 2022, the government approved financial incentives to 61 companies for its textiles production linked incentive (PLI) scheme. These companies plan investment of Rs. 19,077 crore (US$ 2.39 billion).
• In February 2022, The Ministry of Heavy Industries notified a Phased Manufacturing Programme (PMP) to promote domestic manufacturing of electric vehicles, their assemblies/sub-assemblies and parts/sub-parts/inputs of the sub-assemblies.
• In February 2022, Minister of Finance and Corporate Affairs, Ms. Nirmala Sitharaman, announced a new scheme, Development Initiative for Northeast' PM DevINE', allocating Rs. 1,500 crore (US$ 200.6 million).
• In February 2022, Minister of Finance and Corporate Affairs, Ms. Nirmala Sitharaman, proposed to allocate Rs. 100,000 (US$ 13.37 billion) to assist states in overall investments.
• In January 2022, the Cabinet Committee on Economic Affairs approved equity fusion of Rs. 1,500 crore (US$ 200.6 million) in the Indian Renewable Energy Development Agency Limited (IREDA).
• The Ministry of Finance has granted Rs. 7,309 crore (US$ 977.4 million) to 11 states for undertaking reforms in the power sector in January 2022.
• In January 2022, the government sanctioned seven Mega Integrated Textile Regions and Apparel Parks with an investment of nearly Rs. 4,500 crore (US$ 601.8 million).
• In December 2021, Minister of Commerce and Industry, Consumer Affairs, Food and Public Distribution and Textiles, Mr. Piyush Goyal, stated that more than 25,000 compliances had been reduced in the previous exercise implemented by the centre to reduce the compliance burden and to promote ease of living and ease of doing business.
• On December 27, 2021, Prime Minister Mr. Narendra Modi visited Mandi to inaugurate hydropower projects worth over Rs. 11,000 crore (US$ 1.47 billion).
• In the next five years, the Airports Authority of India plans to invest roughly Rs. 25,000 crore (US$ 3.34 billion) in the expansion and renovation of current terminals.
• In September 2021, Minister of Commerce and Industry, Consumer Affairs, Food and Public Distribution and Textiles, Mr. Piyush Goyal, launched the National Single Window System (NSWS). The single-window portal would become a one-stop shop for investors for approvals and clearances, which would bring transparency, accountability and responsiveness to the ecosystem.

Road Ahead

In line with this, in May 2022, during the India-Denmark Business Forum, Prime Minister Mr. Narendra Modi applauded India's reforms and investment opportunities and stated that those who don't invest in the country are bound to miss out. He stated that India's ongoing economic reforms have created investment opportunities in various sectors like renewable energy, health, ports, shipping, circular economy and water management, and invited Denmark, as well as other foreign countries, to invest in these sectors.