'Funding Winter' Has A Positive Side, According To Nuvama's Anshu Kapoor

While startups find it increasingly tough to raise capital in private markets amid global uncertainty, Anshu Kapoor of Nuvama Asset Management calls it a change in investor preference rather than a "funding winter".

There is a slowdown but with a dramatic increase in real asset investments, said Kapoor, president and head at the asset management firm. "By real assets, I mean real estate, infrastructure, warehousing, logistics and data centers."

The end of easy money regime, a slowing global economy and rising costs dried up capital for startups. Funding for such Indian ventures dropped 33% to $24 billion in 2022, though it was still higher than 2019 and 2020, according to a report by PwC India. The pain deepened this year with a wave of job cuts across the tech industry globally, including Indian startups.

Kapoor, however, looks at the numbers differently. Average foreign direct and private equity investment ranged $45 billion to $50 billion dollars between 2018 and 2022, with $75 billion in 2021 being an aberration, he told BQ Prime's Niraj Shah during an interview. That's rather a "pivot" in investor preference from a sector perspective rather than a "funding winter", he said.

Large startups that have proven their business and revenue models have the advantage of raising capital, he said. These could sustain in the current environment, provided extra hard work and agility are shown by the founders and angel investors, Kapoor said. He also sees venture debt funds emerging as an alternative option.

U.S. and European investors, among the major allocators of capital to India, have turned cautious, according to Kapoor. With 50% of their Asian allocation going to China, the focus is shifting from growth to the safe preservation of liquidity given their poor experience in the past four to five years, he said.

Domestic alternatives are emerging, he said. Earlier, Indians' savings were equally split between real estate-gold and bank deposits-small savings. A generational shift is building interest in alternatives such as private equity and infrastructure, Kapoor said.

As global investors take a pause, he said, there are high chances of Indian capital filling the gap.

Kapoor calls the ongoing global volatility that has prompted the collapse of Silicon Valley Bank and the rescue of Credit Suisse a "duration crisis" instead of a "credit crisis".

For India, he expects the global turbulence, if controlled at the current juncture, to show up as a gradual decline in merchandise exports volumes as the post-pandemic consumption spike is fading.

A slowdown means India's tax collections may decline, though falling commodity prices would depress the cost of imports, he said.

Falling exports can also deteriorate the balance of payments, hurting recovery "as we are a capital account deficit country where our imports are higher than our exports".