Executive summary

India’s private equity (PE) market entered a disciplined phase in 2025, marked by a sharp slowdown in large-cap dealmaking and a shift toward more selective, value-creation-focused investing. Total private equity and venture capital (PE-VC) investments declined approximately 17%, hitting $36 billion. Traditional PE activity dropped but was partially offset by continued growth in venture capital (VC) and growth capital.

Despite this moderation in value, deal volumes remained resilient, increasing by approximately 10%. This indicates sustained investor interest despite a more cautious deployment approach.

Average deal size declined roughly 25% year over year, reflecting a structural shift in how capital is being deployed. Investors moved away from concentrated, large-cap control transactions and toward smaller check sizes, driven by lower ownership stakes and fewer large buyouts. This shift was underpinned by tighter leverage conditions, persistent valuation gaps, and greater selectivity in underwriting, with capital increasingly spread across a broader set of opportunities.

At the same time, capital gravitated toward resilient, domestically anchored sectors. Traditional sectors and their subsectors continued to account for most of the capital deployed. However, activity became more diversified, and the consumer/retail and manufacturing/industrial sectors gained strong momentum.

These sectors have benefited from consumption recovery, supply chain realignment, and policy support, offering stronger earnings visibility and greater scope for execution-led value creation. In contrast, historically dominant sectors such as IT/ITeS and healthcare saw moderated activity. Financial services began to recover toward the end of the year, supported by a pipeline of larger transactions; multiple deals were announced, pending regulatory approvals expected in the first half of 2026.

This shift in sector focus was accompanied by a broader transition in value creation. With multiple expansions and leverage becoming less reliable, investors are increasingly prioritizing operational improvement, governance, and platform-building strategies to drive returns. Buy-and-build approaches and bolt-on acquisitions are gaining prominence, particularly among mid-sized assets where there is greater headroom for value creation.

Fund-raising remains robust, reinforcing India’s position as a key investment destination within the Asia-Pacific region. Domestic and global capital pools continued to expand, attracting larger fund sizes and increased allocations to India. However, the environment is becoming more competitive, with limited partners (LPs) placing greater emphasis on track record, distributions, and execution capability.

Exit activity remained broadly stable in 2025, increasing a modest 3% to approximately $34 billion. However, there was a notable shift in exit routes. Public markets remained the largest channel, although subdued performance led investors to increasingly diversify toward strategic sales, buybacks, and partial exits. Aging portfolios and extended holding periods also shaped exit strategies, prompting funds to seek more flexible liquidity approaches. While exits are expected to remain stable in 2026, ongoing geopolitical uncertainty and market volatility may continue to temper momentum.

Looking ahead, India’s PE-VC outlook remains cautiously optimistic. Strong domestic fundamentals—including moderating interest rates, stable inflation, and resilient consumption—provide a supportive backdrop. However, tighter global liquidity and valuation gaps are likely to sustain a more selective investment environment. Investors are expected to continue prioritizing domestically aligned sectors—such as manufacturing and industrials and financial services—where structural tailwinds and policy support remain strong.

Artificial intelligence (AI) is emerging as a core investment lens, reshaping diligence and portfolio strategy. Investors are increasingly evaluating assets through an AI lens—for example, assessing disruption risk, refining underwriting, and identifying upside—while also reexamining existing portfolios to drive productivity, accelerate growth, and improve margins through automation, pricing optimization, and intelligent operations.

AI is also creating a distinct investment opportunity in the infrastructure layer, including data centers, compute capacity, and enabling digital ecosystems. As a result, the ability to assess
AI-driven disruption, capture operational value, and identify infrastructure plays is becoming
a key differentiator for investors.

India’s PE market enters 2026 with strong structural fundamentals but heightened selectivity.
The next phase of growth will be defined less by capital availability and more by investors’
ability to deploy capital with discipline. Investors will need to execute value-creation strategies effectively to navigate an increasingly complex global environment. However, macro shocks such as geopolitical tensions, energy market disruptions, and cross-border liquidity volatility may moderate deal and exit activity.

About IVCA

The Indian Venture and Alternate Capital Association (IVCA) is a not-for-profit apex industry body that promotes the alternate capital industry and fosters a vibrant investment ecosystem in India. IVCA is committed to supporting the ecosystem by facilitating advocacy discussions with the Government of India, policymakers, and regulators, thereby contributing to the growth of entrepreneurial activity, innovation, and job creation in the country, and supporting the development of India as a leading fund management hub. IVCA represents 490+ funds with a combined AUM of over $350 billion. Our members include some of the most active domestic and global venture capital and private equity funds, as well as funds focused on infrastructure, real estate, and credit. The association also includes limited partners, investment companies, family offices, corporate venture capital investors, and knowledge partners. These funds invest across a wide spectrum of strategies, including early-stage and emerging companies, venture growth, buyouts, special situations, distressed assets, credit, and venture debt, among others.