India’s private capital market has seen its assets under management (AUM) grow at an impressive pace over the past five years, nearly doubling to $124.3 billion by the end of 2023, according to Preqin data.
The research firm noted that the world’s most populous country is emerging as a key destination for global limited partners (LPs) attracted by its strong GDP growth, favorable demographics, large-scale infrastructure projects and its ongoing economic reforms.
Preqin revealed that the expansion of India-focused venture capital funds has largely driven the growth of private equity assets under management in India, with venture capital now accounting for 36 per cent of total assets under capital management private sector in the country, compared to only 14 percent in 2010.
Indeed, over the past decade, assets under management of India-focused venture capital funds have increased eightfold, from $5.5 billion in 2010 to $44.8 billion in 2010. end of 2023.
“India has long been an important player in the global venture capital game,” writes Harsha Narayan, senior editor at Preqin.
“Its strong economic expansion and young, increasingly wealthy population continue to attract investors to this asset class,” Narayan said.
She noted that although global macroeconomic challenges have triggered a more cautious sentiment among investors towards venture capital in recent years, which has negatively impacted deal activity in the country, the India remains just behind greater China when it comes to deal value in the APAC region.
“Investors have adapted to the new environment by now focusing on high-quality assets and emphasizing profitability, leading to renewed optimism about India’s long-term potential,” Narayan said.
Private equity, meanwhile, has come to the forefront in India in recent years, with the number of private equity deals in India increasing from 141 in 2022 to 153 in 2023.
“In 2023, the transaction value stabilized at 13.5 billion US dollars. This momentum has continued into 2024, with 67 transactions totaling $7.5 billion in the first half of the year,” Narayan said.
India-focused private debt funds, however, are experiencing “staggering” growth, she said, with assets under management increasing 26-fold, from $700 million in 2010 to $17.8 billion in 2023, far outperforming other asset classes in India, including venture capital (8x). , private equity (2.1x), real estate (1.6x) and infrastructure (1.8x) over the same period.
“It has not only become a vital part of the Indian private capital market, but has also established itself as a regional leader, with assets under management surpassing all other APAC markets in 2022, including its closest competitors , South Korea and Greater China, according to Preqin. data,” Narayan said.
“This impressive growth is due to India’s urgent need for financing.”
She explained that many fast-growing mid-sized companies are constrained by a significant financing gap, as the conservative lending practices of local banks often fail to meet their diverse capital needs.
“Private lenders are stepping in to fill this void, offering more flexible financing solutions that banks are unable to provide,” she said, with regulatory improvements also playing a key role in the expansion. .
Assets under management of India-focused real estate funds have also increased steadily from US$12.7 billion in 2010 to US$21.3 billion by the end of 2023, while the infrastructure sector is also attracting increased attention, with high development needs attracting inflows of private capital.
With a total transaction value of $14.1 billion at the end of 2023 and $9.5 billion across 77 transactions in the first half of this year, India maintained its position as the most active transaction market for infrastructure in the APAC region, according to Preqin.
Notably, Preqin noted that New Delhi’s budget for 2024-25 sets a capital expenditure target of $133 billion, of which more than $20 billion would be required from private players.
Some of the key investors, Narayan said, are globally leading limited partnerships, such as the Abu Dhabi Investment Authority, Temasek Holdings and the CPP Investments Board.
“For many, the country forms a key strategic part of their portfolio,” she said.
