PE exits drive down actual FDI in April-November 2023-24


Actual foreign direct investments into India fell 36% to $21billion as foreign investors pulled out $26 billion worth investments from the Indian firms during April-November, the latest RBI data shows. This is driven by IPO exits by private equity (PE) firms as record IPOs have been listed during the year. In the process `volatile portfolio flows’ were higher than ‘durable FDI’ flows during the period.

In 2023, PE exits worth $ 22 billion were tracked, 20% higher than $18 billion exits in 2022, according to data collated by Venture Intelligence, a specialist firm tracking PE deals. A bulk of the deals were concluded in the second half of the year and the largest exit route was through public market sales which includes exits at the time of listing as well as post IPO sales by the PE according to Arun Natrajan, founder of Venture Intelligence. The Sensex rose 20 percent during the year which triggered higher valuation of their investments that made the exits attractive for the PE.

As a result, outflows through repatriation of investments or disinvestments amounted to $ 25.6 billion during April-November’23 up from $19.9 billion worth repatriation in the same period a year ago. After deducting the outflows from gross FDI inflows of $47 billion, actual FDI by foreign investors turns out to be $21.4 billion. This is lesser than the $22.7 billion worth portfolio inflows during the period.

Economists attribute the FDI outflows largely to such PE exits. “Outbound FDI is increasing. April-November repatriation of $24 billion worth equity is probably a reflection of PE exits through the IPOs” said Rahul Bajoria, head of EM Asia (ex China) Economics research, Barclays Investment Bank.

IPO exits have been on the rise and may continue to rise. In 2023 of the 24 PE/VC backed exits that the firm tracked 19 were through offer for sales of IPOs compared 16 deals in 2022 of which 15 were OFS portion, Natrajan said. Private equity exits through open market operations are currently at an all-time high and are anticipated to further increase, according to a report by Kotak Investment Bank.

The surge in PE exits have contracted the value of actual FDI flows in the country and impact one of the durable avenues of foreign exchange inflows into the country.But economists say that the trend in PE exits could trigger more inflows as this could be a pointer to the returns potential in the country and also open up other avenues of inflows. ” In terms of prospects for capital flows, this trend could open up avenues for more such flows over a longer time frame, say five years,” Bajoria said. “But over the short term there are more avenues opening up like the private credit which is seeing a lot of activity” he added.Even as more exit options open up in the current calendar year through post IPO sales as well, actual exits would depend on how the stock market performs which decides how attractive an exit option would turn out

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