India’s private equity market has seen assets under management (AUM) grow at an impressive pace over the past five years, nearly doubling to US$124.3 billion by the end of 2023, according to data from Preqin.

The research house noted that the world’s most populous country is becoming a key destination for global limited partners (LPs), attracted by its strong GDP growth, favorable demographics, large-scale infrastructure projects and ongoing economic reforms.

Preqin revealed that the expansion of venture capital funds focused on India has largely driven the growth of private equity AUM in India, with VC now accounting for 36 percent of total private equity AUM in the country, up from just 14 percent in 2010. .

Namely, over the past decade, the AUM of venture capital funds focused on India has grown eightfold from US$5.5 billion in 2010. to USD 44.8 billion by the end of 2023.

"India has long been an important player in the global risk game," writes Preqin senior writer Harsha Narayan.

"Its strong economic expansion and an increasingly affluent young population continue to attract investors to the asset class," Narayan said.

She noted that while global macroeconomic challenges have caused more cautious sentiment among venture capital investors in recent years, negatively impacting deal activity in the country, India still ranks second only to China when it comes to deal value in APAC.

"Investors have adapted to the new environment by shifting their focus to high-quality assets and emphasizing profitability, leading to renewed optimism about India's long-term potential," Narayan said.

Meanwhile, private equity has come to the fore in India in recent years, with private equity deals in India increasing from 141 in 2022. at 153 in 2023.

"In 2023 the value of the deal stabilized at US$13.5 billion. This momentum carried over into 2024. with 67 deals totaling US$7.5 billion in the first half of the year,” Narayan said.

However, India-focused private debt funds are experiencing "amazing" growth, she said, with AUM growing 26-fold from US$700 million in 2010. to US$17.8 billion by 2023, far outpacing other asset classes in India including venture capital (8x), private equity (2.1x), real estate (1.6x) and infrastructure (1.8x) for the same period.

"Not only has it become a critical part of India's private equity market, it has also established itself as a regional leader, with AUM 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 driven by India's urgent need for financing."

She explained that many fast-growing mid-sized businesses are constrained by significant funding shortages because 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 financial solutions that banks are unable to provide," she said, with regulatory improvements also playing a key role in the expansion.

AUM of India-focused real estate funds has also grown steadily from US$12.7 billion in 2010. to US$21.3 billion by the end of 2023, while the infrastructure sector is similarly attracting increasing attention, with high development needs attracting inflows of private capital.

With a total deal value of USD 14.1 billion by the end of 2023. and $9.5 billion from 77 deals in the first half of this year, India maintained its position as the most active infrastructure deal market in the Asia-Pacific region, according to Preqin.

Namely, Preqin noted that New Delhi's 2024-2025 budget. sets a capex target of US$133 billion, of which over US$20 billion will be required from private equity players.

Some of the best investors, Narayan said, are world-renowned long-term companies such as Abu Dhabi Investment Authority, Temasek Holdings and CPP Investments Board.

"For many, the country is a key strategic component of their portfolios," she said.