Domestic private capital plays a key role in financing businesses

Players that channel foreign funds into local ventures must optimize their portfolio diversification

- VIVEK PANDIT & SIDDHARTHA GUPTA

Private capital deployment in India has risen steadily from $37 billion in 2012-2014 to $137 billion in 2022-2024, and its role in financing private enterprises has expanded over this time. The share of domestic private equity (PE) in overall PE activity in India has also grown from 9% to 11% during this period, as McKinsey data shows.

What's fuelling domestic funds?: Three drivers are underpinning the development and growth of domestic funds in India: more domestic general partners (GPs or fund managers); greater fundraising and fund sizes; and emerging interest among limited partners (LPs or investors) in India-specific portfolios.

The number of domestic GPs with $50 million or more deployed has more than doubled from 34 to 80 between 2016-2018 and 2022-2024. Their average deal size has also risen from $98 million to $114 million, and they are addressing a more diversified set of needs among mid-market enterprises.

Despite this growth, the share of domestic GPs in total PE deployment in India is a relatively modest 11% compared to 62% in Korea and 26% in Japan, leaving headroom for growth.