Private equity funds in India are sitting on substantial dry powder as deployment opportunities have shrunk due to pricier valuations, and they still have funds raised from previous years as well as returns made from exits.

During the years 2022 to 2024, PE funds in India have cumulatively raised around $23 billion, but the deployment universe has dropped drastically to a mere 85 deals in 2024 from around 390 deals in 2022 and 234 deals in 2023, according to data from LSEG Deals Intelligence.

Deployment challenges

 “A big issue is that some of the large PE firms have too much dry powder,” said the senior partner at a law firm, who did not wish to be quoted as his firm is involved in several high-profile deals. While data on actual funds available with the PE funds were not available, industry insiders estimated that more than 80 per cent of the funds were still awaiting deployment.

Another factor that has contributed to the dynamics of squeezing out potential investments is that sovereign wealth funds are directly investing in companies, instead of routing them through funds, said the law firm partner. “They don’t mind taking a direct stake now,” he said.

The lack of investment opportunities as well as challenges in attracting LPs (limited partners) has also resulted in a decrease in funds being raised that has fallen to a 7-year low of around $4.3 billion in 2024, from over $6 billion in 2023 and $12.7 billion in 2022, which was one of the best years for fund raising by PE firms.

After the euphoria of 2021 and 2022, which saw PE money flowing unchecked into new-age firms at expensive valuations and receiving a reality check in the public markets, there has been a marked recalibration in funding, said Bhavesh Shah, Head of Investment Banking at Equirus.

He pointed out that some of the funds have also made good returns from exiting their investments over the last couple of years and this has added to the dry powder available with the PE firms.

Expectations of unnaturally high valuations from promoters have halted many deals in its tracks or slowed down the process. A case in point is that of snacks maker Haldiram, which saw an initial frenzy among all the top private equity investors, who then withdrew as the asking price for a majority stake was exorbitant.

Fund raises

Many of the top India-based PE firms have raised relatively smaller amounts of funds in 2024, according to data by LSEG.

For instance, Accel Partners Management raised $650 million, Kedaara Capital raised $634 million, Lighthouse Advisors raised $475 million, and Gef Capital Partners raised $380 million.

The top ten fund raises in the year aggregated $3.2 billion, accounting for nearly three-fourths of the total funds raised.

“We are at an inflexion point in the PE funding cycle,” said Shah, forecasting more deals in 2025 as the exuberance in the markets settled down.