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Development of Private Equity in India

By - King Stubb & Kasiva on February 15, 2023

The current economic, commercial, and industrial landscape heavily relies on investment, also referred to as fundraising, for growth. Investments can come in various forms, such as private equity funding, angel investments, seed money, etc. These investments differ in terms of nature and amount and are subject to various laws and regulations.

Private equity investment in India involves the creation of a fund by pooling funds from individuals or organizations, which are then invested into various businesses. During a private equity investment, several laws and regulations are applicable, including the Companies Act, 2013, Companies Rules, 2014, Foreign Exchange Management Act, 1998, SEBI Regulations, 2012, FDI Policy, and Income Tax Act, 1961. Both the company receiving the investment and the private equity fund are responsible for adhering to these laws.

Development of Private Equity in India

Private equity in India dates back to the early 1990s when the Indian economy was significantly liberalized and opened up to international investment. Private equity investments in India were first driven mostly by foreign investors and focused on providing expansion capital to small and medium-sized firms. With the expansion of the Indian economy in the early 2000s, private equity activity increased, attracting both domestic and global investors.

The Indian private equity firms matured in the mid-2000s and have since expanded to become one of the world’s major private equity markets. With the Indian market’s maturation, private equity firms are now focusing on larger and more established companies, and investment activity has switched toward buyouts and growth capital investments in high-growth areas like technology, e-commerce, and healthcare.

Private equity in Indiais now a multibillion-dollar industry in India, with a growing number of domestic and international investors. The Indian government has also contributed to the industry’s rapid expansion by fostering a conducive climate for private equity investment. Despite persistent obstacles such as public debt and inadequate infrastructure, India’s private equity firms are likely to expand in the future years. Private equity investment has become a significant contributor to the Indian economy, with hundreds of private equity firms operating in the country and investing in a wide range of sectors.

Key steps involved in a Private equity investment

The following steps are involved in a private equity investment in India:

Identification of target companies

Firstly, Private equity firms identify potential investments by conducting extensive research on various industries and market trends.

Due diligence

In the second step, private equity firms select viable companies to invest in, which is usually done through a detailed examination of various industries and market trends.

Preparation of teaser document

The purpose of a teaser document, also known as a “Confidential Information Memorandum” is to present an overview of the target company’s financial and operational performance, market position, and investment prospects.

Negotiating terms

Following the completion of due diligence, the private equity firm and the target company negotiate the conditions of the investment, including the amount of capital committed, ownership structure, and exit plan.

Term sheet and definitive agreements

A term sheet is signed to establish the major investment parameters, following which the private equity firm and the target company engage in more specific and legally binding agreements, such as the Share Purchase Agreement.

Both the target company and the private equity firm must follow all applicable legal and regulatory requirements, such as the Companies Act, 2013, Companies Rules, 2014, Foreign Exchange Management Act, 1998, SEBI Regulations, 2012, FDI Policy, and Income Tax Act, 1961.


The private equity firm makes the agreed-upon capital investment in the target company and becomes a stakeholder.

Monitoring and exit

The private equity firm regularly watches the target company’s performance and gives support and guidance to assist it in meeting its objectives. The private equity group may eventually sell its investment in the company for a profit.

These steps may differ based on the specifics of each private equity investment, but the underlying goal is to maximize returns for the private equity firm and its investors.

Exit Strategies for Investors

To optimize returns in a private equity investment, investors often adopt a range of tactics. They employ the following strategies:

Buy-and-Hold Strategy

This is a long-term investment strategy in which private equity investors buy an interest in a firm to keep the investment for a long time, generally several years. The purpose of this method is to establish a relationship with the firm’s management and assist them in growing the business over time, resulting in a significant return on investment when the company is sold.

Turnaround Strategy

This strategy is centered on investing in underperforming businesses and collaborating with management to improve the company’s performance. This can include reorganizing operations, decreasing costs, and introducing new strategies to improve the financial performance of the organization. The idea is to turn the firm around and then sell it for a significant profit.

The optimal method for employing a private equity investment in India is based on each investor’s individual goals and risk tolerance.


Private equity investments in India have shown to be an important part of encouraging entrepreneurship and economic progress. These investors provide equity in exchange for shares in the companies in which they invest, albeit in India, they often take minority ownership due to the founder’s concentration of shareholdings. Despite the Indian government’s efforts to liberalize the economy and improve commercial operations, the country has received criticism in recent years for its tight laws and regulations, which make raising funds from overseas investors difficult for private equity funds.

However, India’s diverse skill pool provides excellent private equity investment potential. The highly regulated environment can be regarded as an impediment at times but it can be navigated with the correct advice and help. The aim is that as the Indian economy grows, regulators will continue to liberalize the market and give incentives to attract more international investment. Various Sectors in such as service, manufacturing, banking, information technology, etc. have enormous investment potential and are anticipated to draw additional capital in the future.


What Is The Future Of The Private Equity Sector In India?

With an expanding number of domestic and international investors entering the market, the future of India’s private equity sector appears bright. The expansion of the Indian private equity sector is likely to be driven by the growth of the Indian economy, favorable government regulations, and an expanding number of possibilities in high-growth industries such as technology, healthcare, and e-commerce.

What Are The 4 Main Areas Within Private Equity?

Private equity is divided into four categories: buyouts, growth capital, venture capital, and turnaround/distressed investing. Buyouts include purchasing control of older organizations, whereas growth capital invests in smaller firms seeking to develop. Turnaround/distressed investing targets troubled enterprises in need of reorganization, whereas venture capital concentrates on early-stage entrepreneurs.

How Many Private Equity Funds Are There In India?

There are 1,767 Private Equity Funds in India as of January 2023.

King Stubb & Kasiva,
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