5 Sectors Investors Are Bullish About Despite Global Downturn Investors are today looking at long-term returns, purpose and contribution to the country's overall growth over quick returns while choosing the sectors to invest in

The valuation bubble has finally burst. The global slowdown has today pushed investors to stay committed to supporting companies that demonstrate strong unit economics. Path to profitability and sustainable growth have become the keywords. Investors are also taking time in understanding business models before committing to pouring capital. They are also identifying startups where they can add value as mentors.

Additionally, this period of crisis has not only led to recalibration within the business ecosystem but a change in investors' outlook towards sectors. They are looking at long-term returns, purpose and contribution to the country's overall growth while choosing the sectors to invest in over quick returns.

Here are the 5 sectors that most investors in India are bullish on today, despite the unstable economic conditions.

Climate and sustainability

Climatetech as a business model is nothing new. But, even though investors knew about the impact that they could create, they were skeptical about its ability to make money, up until the pandemic happened. Today, the pandemic-led awareness towards climate and sustainability has led to climatetech startups demonstrating a scalable and promising future. Investors are also looking at it as a profitable and very important sector to invest in.

"While we continue to explore opportunities across sectors, specific segments have caught our attention due to their potential for growth, relevance, and alignment with our investment thesis. One such area of interest is the climate sector. With the pressing need to address climate change, we recognize the importance of startups that develop asset-light technologies to tackle carbon reduction, renewable energy solutions, and sustainable agriculture," said Sanjiv Rangrass, Venture Partner, Unitus Ventures.

By supporting these innovative ventures, the fund aims to contribute to positive environmental impact and foster a more sustainable future. "We recognize that on the climate front, we will have to be patient in the short term but am confident that this sector will boom in the coming years," he added.

Generative AI

Today, Investors are seeing great promise in generative AI (artificial intelligence). "This cutting-edge technology has the power to revolutionize multiple industries. We are particularly excited about startups that leverage generative AI to solve complex problems, enhance operational efficiency, and create skilled, meaningful job opportunities," Rangrass added.

AI and AI enablers are also in great demand today. According to Venture Intelligence's data, the share of VC investments in AI startups stands at 15 per cent of the total VC funding in the first five months of 2023 (January-May) compared to a corresponding 10 per cent share commanded by AI startups in 2022. Stanford University's annual AI Index report also ranked India fifth in terms of investments received by startups offering AI-based products and services last year. "Businesses that have shaped up strongly over the last 12 months, showing a movement to strong P&Ls and consistent demand are hot right now, demanding the most investor attention. I'm bullish on the India story and seeing some great businesses created right now. I'm prioritizing investments in SaaS, Climate Tech, Consumer Brands and Internet and AI - Enablers," said Mohit Sadaani, co-founder, The Moms Co.

Health and wellness

The pandemic has not brought health to the fore in the minds of consumers, it has also led to an uptick in demand for telemedicine, digital-first diagnostics companies, online medicine delivery platforms, tech-based fitness products, among others. According to Tracxn, there are 8083 HealthTech startups in India. "I'm keen on investing in Health and Wellness. While a lot of work has already been done in this category, there is still a lot of headroom for growth in research-based proprietary products. Think of something that has a product moat, as we did at Dr. Vaidya's with our formulations. New categories like gut health, anti-aging and longevity will see a lot of action going forward," said Arjun Vaidya, co-founder, V3 Ventures.

Direct to Customer (D2C)

D2C as a sector reached an inflection point through the pandemic when consumers were sitting at home and ordering online. Interestingly, the habit formation has stayed and D2C brands continue to be in demand in the new normal. Many of them are also going omnichannel by opening offline outlets. According to last year's report logistics startup Shiprocket, CII (Confederation of Indian Industries) and Praxis Global Alliance on the D2C market in India, D2C brands are estimated to be $60 billion industry by FY27, registering a CAGR of about 40 per cent. The prominent D2C players in the country include Mamaearth, SUGAR Cosmetics, boAt, Wakefit, Bombay Shaving Company, WOW Skin Science, Pepperfry and many others.

According to the report, D2C is a $12 billion market today and several D2C brands in India have crossed INR 100Cr revenue in 3-5 years after the launch. And, even today, investors continue to be bullish on the sector. "Our funding outlook for the coming year is optimistic, as evident in Sequoia's decision recently to split into three different funds to facilitate conflict-free investments in the Indian market. This itself indicates a positive investment scenario in the months ahead. We are particularly interested in investing in promising deep tech companies and hold a bullish outlook on direct-to-consumer (D2C) businesses as well," said Shantanu Deshpande, CEO and co-founder, Bombay Shaving Company.

Deeptech

India is being considered the next deeptech hub. Investors believe that many startups in the sector have strong scalability potential. The penetration of advanced technologies into healthcare and household will particularly lead the deeptech revolution and unknowingly consumers are expected to see a strong affinity to AI-backed products like smart cameras, locks etc. The increased adoption of technology during lockdowns has paved the way for the adoption of AI, machine learning (ML), the internet of things( IoT), big data and robotics across sectors. Many deeptech startups are thus able to find the right product-market fit in India today, making it a favorable sector to invest in even during the current economic crisis.

"Timing the investment game is impossible, therefore it's imperative that investors keep evaluating businesses and keep investing in entrepreneurs. As an investor, I am still meeting young minds to have discussions. I will continue to meet and converse with like-minded entrepreneurs. For me IoT based businesses will continue to get my attention," said Amit Lakhotia, founder & CEO, Park+.