India's space sector is experiencing a golden age. Their successful missions, such as Chandrayaan-3 and Aditya-L1, and ambitious goals have garnered global recognition. As per Kotak Securities report, while India's space spending as a percentage of its gross domestic product (GDP) is still relatively lower compared to the US and Russia, India is way ahead of many developed peers in the Group of 20 (G20) nations. Also, India's space technology is on par with other major countries globally. This, along with favourable government reforms and a proven track record of successful and affordable missions, is attracting India's domestic and foreign diaspora to contribute to a growing private space industry. 

But this was different. In 2014, India had one registered start-up in the space sector, but by the end of 2023, 189 space start-up companies were registered in India. A few years ago, the US denied India much-needed cryogenic technology to power its rocket. India has come a long way from there in terms of capabilities and private investments. Since India opened the space sector to private players in 2020, the investments have been growing steadily. Government reforms like the India Space Policy 2023 and the creation of IN-SPACe, which regulates private space activities, have played a key role in India's space market expansion. 

Government reforms: Recent change 

The excitement in India's space sector started in 2023. The success of ISRO's (Indian Space Research Organisation) Chandrayaan-3 lunar mission and Aditya-L1, India's first solar mission, ignited a space race. As per the Kotak report, big and small investors scrambled to participate in this exciting new frontier. While India boasts over a hundred space start-ups, most are in their early stages. And their growth requires significant capital, which presents a major hurdle for these young companies.

Historically, investors have been cautious about India's space tech scene due to high entry barriers, strict regulations, and the inherent risk of failure in such a nascent industry. Additionally, the limited flow of private investment created a challenging environment for space start-ups to secure funding.

That said, India's space sector is experiencing a surge in investment. The funding received by these space start-ups reached a total of $124.7 million in 2023 from $67.2 million in 20215. To further accelerate this growth, the Indian government, on February 21, 2024, relaxed restrictions on foreign investment. That is, up to 100% Foreign Direct Investment (FDI) is allowed in specific areas of the space industry, aiming to attract international capital and companies. This policy shift comes at a significant time for India's space ambitions. The successful landing of a spacecraft near the lunar south pole, a historic first, further bolstered the nation's spacefaring goals. With aspirations to capture a larger share of the global launch market (predicted to reach $47.3 billion by 2032), India is actively privatising space launches and leveraging foreign investment to become a major player in the space economy. India currently accounts for about 2% of the global space economy.

The change in FDI norms: 

The Indian government has significantly simplified the rules on foreign investments, particularly in the satellite sector. Now, different parts of the satellite sector are limited regarding how much foreign investment is allowed. Previously, foreign investment in satellite development and operations required government approval. It is important to note that investments exceeding the specified limits (49% for launch vehicles and 74% for satellites) will still require government approval.

For instance, with respect to launch vehicles, up to 49% of foreign investments are allowed through the automatic route, and anything beyond this limit needs government approval. This covers launch vehicles and related systems used for spacecraft launches and landings.

Similarly, foreign investors can invest up to 74% under the automatic route in satellite manufacturing. This investment includes satellite operation, data services, ground segments, and user segments.

Investment opportunities 

India's space industry attracts significant investor interest, fuelled by government initiatives and recent funding success stories. Bengaluru-based Pixxel (raised $36 million from investors such as Google and Radical Ventures), Chennai-based Agnikul Cosmos, a space tech company (secured $26.7 million), and SatSure, another space tech company (raised $15 million) all secured impressive funding rounds in 2023. However, challenges remain. Local investors are hesitant to participate in later-stage funding rounds, according to Pixxel's CEO Awais. With the Indian government's initiatives to support the Indian space market, it should grow. The recent amendment to the Foreign Direct Investment (FDI) limit is a significant step forward. Also, initiatives like 'Make in India,' production-linked incentive (PLI) schemes, and indigenisation efforts have levelled the playing field and created a favourable regulatory environment for private players in the space tech ecosystem.

For individual investors interested in the space sector, patience is crucial. Most space tech start-ups are still in their early stages. One can check publicly listed companies that supply aerospace components or are involved with India's space missions. Examples include Larsen & Toubro, Mishra Dhatu Nigam, Data Patterns, and HAL. These companies offer a more immediate entry point while the space tech start-up ecosystem matures. 

 

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This article has been prepared by Kotak Mahindra Asset Management (Singapore) Pte. Ltd. ("KMAMS").