Outlook 2025 | Investment robustness to continue in 2025
• Expect deal volumes to increase in the coming year.
Highlights from 2024
Economic stability in the first nine months of 2024, M&A activity increased by 13.8% to US$69.2 bn, up from US$60.8 bn in the same period of 2023. PE / VC funds have emerged as a significant segment of M&A activity, with deals aggregating US$24.2 bn in the first nine months of 2024, an increase of 8.9% compared to the same period last year.
Organizations increasingly utilise M&A to address technological disruptions, sustainability concerns, leverage government infrastructure initiatives and enhance operational efficiency through strategic divestitures.
Private equity (PE) and venture capital (VC) investments in India have been on an upward trajectory, reflecting the country’s expanding startup ecosystem and economic potential. Key sectors attracting investment include technology, consumer goods, energy, financial services, healthcare and infrastructure, with the consumer and technology sector, particularly B2C commerce being especially notable.
In the first half of 2024, investments in private equity (PE) and venture capital (VC) accounted for 59% of the previous year's total. Leading global PE funds invested about US$10 bn in India, surpassing their 2023 total of around US$8 bn.
What would drive the transactions in the coming fiscal?
The rapidly transforming artificial intelligence space, robust push on inclusive policies and incentives such as the creation of Smart Power Grid, Production-Linked Incentive Scheme for renewable energy and semi-conductors, National Infrastructure Pipeline and National Digital Health Blueprint will continue to attract significant investments. Moreover, as India transitions to 5G, the telecom sector will be a key enabler for digital transformation across sectors.
Additionally, with health and wellness taking centre stage in our lives, the healthcare and pharmaceutical industry will continue expanding strongly. Driven by rising demand for healthcare services and India becoming the global hub for generic drugs, there is immense scope for investments. The confluence of technological innovations applicable to healthcare is creating novel investment opportunities. Telemedicine, virtual reality (VR) medical training, surgery via robots and gene therapy are just a few innovative spaces attracting capital.
Driven by favourable exchange rates and supportive regulatory environments, companies are increasingly pursuing international expansion to access new markets and diversify their portfolios. The forecast for private equity investments in cross-border M&A in India for 2025 underscores the country's rising significance in the global investment landscape.
But concerns remain
While the country is attracting investors, a few economic challenges may prove to be impediments to growth. Increased interest in India's markets may lead to fierce competition for attractive targets. Hence, valuation discrepancies between buyers and sellers can complicate negotiations. Additionally, investor confidence and the appeal of deals can be compromised by market volatility. These need to be checked with necessary action.
Moreover, the regulatory landscape in India poses challenges with its intricate and overlapping regulations from several authorities. It exacerbates the problem for investors. The current uncertainty, fuelled by geopolitical tensions, highlights the need for the country to address issues related to the ease of conducting business and streamlining the processes.
One aspect of improving ease would involve simplifying tax considerations, which frequently necessitate investment structures, using jurisdictions with double taxation agreements.
With 2025 being the year of economic stability, we are hopeful that the deal volumes will see a rise from the levels witnessed in 2024.