From e-commerce to SaaS-based education platforms and real-time financial service providers—let’s examine which sectors in India have the potential to attract investors in 2022.
Rapid advances in science and technology have led the global startup community to produce a number of technologies that have disrupted and altered business practices. The same can be said for India’s thriving startup ecosystem. Although India is not a new destination for venture capitalists, the country has seen an uptick in dollars spent over the last year and a half. Its unicorn (any startup with a valuation of over US$1 billion) count has doubled since 2021, vaulting it to the top of Asian fundraising in the fourth quarter.
By analyzing multiple market data and current investing patterns, we can determine which sectors are more likely to deliver considerable investment returns. Let’s look at which sectors have the potential to break new ground, generate greater disruption and set new global standards.
Promising Sectors That Will Attract Investors in 2022
FinTech, or financial technology, is gaining the attention of investors. In April 2016, India deployed a Unified Payment Interface (UPI) for banks and consumers to make payments more convenient. It was at this point that innovation in the FinTech startup industry began to innovate, leading to the establishment of more payment providers. Interestingly, advancements in FinTech have contributed to the surge in people’s interest in public markets, such as stocks and bonds. India is becoming one of the world’s fastest-growing FinTech marketplaces. Over 67% of the more than 2,100 companies in the FinTech sector were founded in the past 5 years.
According to some projections, India’s FinTech business is worth US$50-60 billion in FY20 and is expected to increase to US$150 billion by 2025. The report further states, in the FinTech sector, investments of more than US$8 billion have already been made at different stages of development in 2021. Over 17 FinTech startups in India have earned the “Unicorn Status”. Indian FinTech startup BharatPe raised US$370 million in a Series E round headed by Tiger Global last quarter, making it a unicorn.
The Indian SaaS community, one of the darling sectors of investors, has benefited from the pandemic. SaaS is a model in which users access services via the Internet instead of installing software or purchasing hardware. SaaS applications are also known as web-based software, on-demand software or hosted software.
According to Shaping India’s SaaS Landscape research, the worldwide SaaS industry is estimated to surpass US$500 billion in revenue by 2025, rising at an annual rate of 18-20%. The report further states, ten of almost a thousand financed SaaS startups in India have achieved unicorn status, with a valuation of US$1 billion each. The startups produce around US$2-3 billion in revenue and employ over 40,000 people.
With a similar annual recurring revenue (ARR) to financing ratio, Indian SaaS firms generate value in line with their international SaaS counterparts. In terms of capital efficiency, leading Indian SaaS startups, such as Freshworks, Gupshup, Browserstack and Innovaccer, surpass their U.S. counterparts. This makes it appealing to private equity and venture capitals (PE/VCs) in general, which explains why Indian SaaS startups have drawn investors.
The Indian e-commerce business has been on an upward trend since a rise in digital adoption during COVID-19. Driven by increased internet and smartphone usage as well as growing consumer wealth, India witnesses strong adoption of online services, such as e-commerce and EdTech. According to a report, the e-commerce business is worth more than US$55 billion in gross merchandise value (GMV), which refers to the total value of merchandise sold over a given period of time through a customer-to-customer (C2C) exchange site, in 2021. It is predicted to generate a yearly GMV of US$350 billion by 2030. Meanwhile, the online retail sector is anticipated to represent 25% of the entire organized retail market and is expected to grow to 37% by 2030.
Another report indicated that the e-commerce sector in India is expected to grow at a 27% compound annual growth rate (CAGR) between 2019 and 2024, reaching US$99 billion. This will be driven primarily by the grocery and fashion/apparel sectors.
Based on last year’s investment trends, e-commerce and consumer internet firms raised more than US$8 billion in PE/VC funding in 2020, resulting in the formation of nine new unicorns. Education technology and hyperlocal categories were leading investment activity, accounting for more than 40% of 2020 investments. These figures definitely reflect investor interest in this area.
The artificial intelligence (AI) ecosystem is exploding, with a slew of innovative businesses entering the fray. Amid the pandemic that led to lockdowns, AI companies in India received a total investment of US$836.3 million last year, the highest capital expenditure in the prior seven years, with a 9.7% year-on-year rise. A report shows that the Indian data science market will experience double-digit growth over the next five to six years, ushering in an era of consolidation and maturity. It also highlights that AI startups in agriculture, industrial and manufacturing, real estate and consumer products received a total of US$23.3 million in investment.
What do the numbers indicate?
This year’s investment resulted in the formation of a historic number of new unicorn firms in India. So far this year, 17 new organizations have been founded which are included in the unicorn list. Apart from these, companies like PharmEasy, which has a US$4 billion valuation, and Digit Insurance, which has a US$3.5 billion valuation, also entered the unicorn club in 2021. According to statistics, Indian entrepreneurs garnered US$26.7 billion in investment in the first three quarters of this year, putting the country on course to collect far more than $35 billion by the end of 2021.
Goldman Sachs predicts that India’s public market would expand further to over US$5 trillion from the current US$ 3.5 trillion mark, making it the fifth-largest in the world. The report also stated that 150 private firms might potentially float on the market during the next three years.
SoftBank Group Corp., a Japanese multinational conglomerate, may invest US$5 billion to US$10 billion in India in 2022 if valuations are attractive and if they “find the right companies”. So far, having spent US$3 billion in 2021, the Japanese firm has not been disappointed in its portfolio of Indian startups, as these firms’ values have increased significantly.
A good deal of research is optimistic that the Indian startup ecosystem will witness many more valuations and investments in the coming year. If you are looking to invest your money and expecting great returns, keep an eye out for these sectors in India!
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