Exclusive | McKinsey's Vivek Pandit: Improved exits, Evolving LP Strategies are Reshaping India’s Private Capital Narrative

There are two aspects to this, and they are independent of each other. The first is geopolitical. You have seen global LPs, particularly Western capital, come away from China for geopolitical reasons and supply chain shifts. That has reduced the amount of western capital underwriting China opportunities. At the same time, China remains the largest market for private alternatives at about 37%, so this is not about China disappearing.

The second is specific to India. For a long time, the question on India was not the availability of opportunities but whether capital distributions out of India would pick up pace. Over the past decade, exits have improved significantly. The first five years saw about $59bn of exits, while the last five saw about $120bn.

When that capital comes back to LPs, it creates the ability to reinvest and builds confidence. There is now a set of LPs that have seen capital returned and are willing to allocate more aggressively, while others who have not yet seen that cycle play out remain more measured.

I would also not describe India as a direct beneficiary of capital moving away from China. Asia as a region has seen declining deployment for four years. If this was a zero-sum shift, you would have seen capital reallocated within Asia, but that has not happened. Capital that has not gone into China has either moved back into developed markets or into other asset classes such as private credit and infrastructure. Investors are taking a global view when they construct portfolios.

Most global investors already factor in about 2.5–3% currency depreciation when they underwrite India investments. Their hurdle rates are typically in dollar or other hard-currency non-INR terms, so currency risk effectively raises the bar. What this also does is drive some sector concentration. Investors tend to gravitate toward sectors that mitigate three types of risks—inflation, currency and policy or regulatory exposure. So, you see more capital going into sectors that are either inflation-hedged, export-oriented or relatively less dependent on policy variability.

At the same time, sectors that are more sensitive to fiscal conditions or macro variables can see relatively more caution. For example, infrastructure investment can be influenced by government spending capacity and concession policies, which in turn is linked to factors that impact government expenditures like India's import bill from oil price shocks.

LPs do not look at this as a direct trade-off. They first reassess their exposures across geographies, sectors and strategies at a portfolio level. Some prefer regional funds because they provide flexibility to adjust exposure across Asian markets depending on valuation dislocations and risk conditions.

Others choose India-dedicated funds when they want greater India exposure. In many cases, LPs will do both. They may have exposure through a regional fund and also allocate to a dedicated India vehicle to increase their overall weighting.

If you look at the current mix, buyout, growth and venture account for about 60–65% of capital deployed in India. As India develops further across infrastructure, private credit and secondaries, you will see a broader set of LPs come in. So, the evolution of strategies will also shape the profile of LPs allocating to India as opportunities in India expand relative to other markets.

These are not contradictory trends, they are complementary. This concentration is a result of how investors manage risk in India. They gravitate toward sectors that help mitigate currency, inflation and policy risks. That has led to capital being concentrated in a few sectors and with a few established GPs.

At the same time, there are several sectors like AI [artificial intelligence], aerospace and defence in India that have not seen as much private capital but offer strong growth opportunities. That has created space for specialised, sector-focused funds that are often closer to the ground and are better positioned to navigate these opportunities. This is also why developing domestic sources of capital remains a priority.

What you are seeing is two sides of the same coin. Families are selling stakes in their operating businesses and at the same time setting up family offices to diversify. The underlying driver is diversification and capital preservation. Family offices are increasingly active across the spectrum. They are participating in early-stage investing, often with founders who understand domestic risks. They are also investing in sunrise sectors such as AI and renewable energy.

Another important aspect is that India’s domestic capital base for private markets has historically been small. With family offices, and now insurers and pensions starting to participate, you will see a broader domestic pool of capital. These investors are often more comfortable underwriting India-specific risks and exploring new strategies that diversify their exposure.

Yes. India is currently at about 1.6–1.8GW of data centre capacity, and this is expected to increase to about 10.5–11.5GW by 2035. That means adding roughly 9–10GW over the next decade. 

About half of this incremental capacity will be driven by hyperscalers and the rest by enterprise demand. The opportunity is not just in building data centres but across the ecosystem. Cooling is becoming a significant area, with advancements in cooling technologies.

Power, including captive power generation, is another important component. Water and real estate also play critical roles. We are already seeing private capital participate in different ways, including joint ventures with operating partners.

There are areas where India does not score as highly as some other markets. These include ease of doing business, aspects of the tax regime and currency-related concerns. However, there is no sense that policy goalposts are shifting unpredictably. These are seen as areas for improvement rather than structural deterrents.

If you look at buyout and growth investments, holding periods have reduced, from over six years to closer to five years. The longer holding periods are more visible in venture. 

There are two reasons for that. One is the availability of capital. Companies can raise additional rounds and stay private longer. The second is valuation. Late-stage private valuations are now closer to public market levels, so companies will only go public when they can achieve the right valuation without diluting existing investors. If market conditions are not supportive, they may choose to delay.

There is certainly a question around whether IT services multiples could be re-rated as a result of AI, either because some service lines shrink or margins come under pressure. 

At the same time, most private IT services companies are adapting quickly. They are building AI-led service lines, helping enterprises implement AI solutions and using AI to rewrite legacy systems. Being private allows them to pivot faster. So, while there may be shifts in where profit pools exist, many of these companies are repositioning themselves toward areas of future growth.

A lot of this will depend on how India expands its opportunity set beyond traditional areas like buyout, growth and venture. As infrastructure, private credit and secondaries scale up, you will see a broader set of LPs participating. 

At a broader level, LPs allocate based on their own requirements for risk, liquidity and returns. India’s growth trajectory ensures that it will continue to feature in global portfolios, but the scale and pace of allocations will depend on how the ecosystem evolves across strategies and asset classes.