The Rise of Conviction Investing in India’s Private Markets

“Conviction investing” has become a familiar phrase in India’s private markets. It appears in summit panels, investor letters, and LP updates. The more useful question is whether it corresponds to a real shift in behaviour or is simply a new label on the same momentum.

A recent Economic Times article suggests that something more substantive is underway. The numbers point to fewer transactions, larger cheques, more disciplined filters, and a greater role for domestic capital in an environment where global money has become more selective.

From Momentum to More Measurable Fundamentals

In the easy-liquidity years, a large part of India’s private equity and venture market leaned on speed and sentiment. Rounds were often accelerated, growth was prioritised over economics, and capital flowed into themes as much as into specific business models.

The latest numbers point to a more selective regime. The ET piece describes investors paying closer attention to unit economics, visibility on profitability, and the quality of governance and execution before committing large amounts of capital. Diligence cycles have lengthened, interactions with management teams have deepened, and domestic investors have stepped into deals where some foreign capital has turned more cautious.

It is still too early to say whether this is purely cyclical discipline driven by higher global rates, or a more durable cultural shift in how risk is evaluated. The answer will become clearer if and when global liquidity conditions ease again.

Tax Parity, Family Offices, and a Silent Reallocation

One of the more structural developments highlighted in the column is the effect of tax parity between listed and unlisted holdings. After capital-gains treatment was aligned, family offices increased their allocation to alternative assets, including private equity and venture, and used their greater tolerance for illiquidity to commit more patient capital.

This change matters because it broadens the domestic pool of investors that are not reliant on short-dated exits and can support follow-on rounds or structured solutions when conditions are less favourable. It does not automatically make every family office a counter-cyclical allocator; internal governance, decision-making processes, and inter-generational considerations will still drive how steady that capital really is under stress. But it does shift the mix of who is participating in India’s private markets.

Fewer Private Equity Deals, Larger Ticket Sizes

The most visible evidence of “quality over quantity” is in private equity deal statistics. Deal count in the first half of FY 2025–26 declined by about 16% year-on-year, while aggregate PE deal value increased by roughly 13%.

That combination of fewer deals and higher total value implies larger cheques concentrated in a smaller set of companies. Sectorally, much of this capital has gone into information technology, industrials, and consumer staples, which are categories where businesses with scale, relatively capital-efficient models, and clearer earnings trajectories are easier to find.

There are two ways to read this. One is that investors are expressing genuine conviction by backing their highest-confidence ideas with more capital instead of spreading themselves thin. The other is that they are crowding into the most consensus opportunities. The underlying data does not fully resolve that tension; it simply shows that the bar for inclusion has moved, and that marginal transactions are being screened out more often.

Venture Capital: A Larger Share, With a Different Mix

On the venture side, the same article indicates that VC now accounts for close to half of all private capital investments in India. At first glance, this looks like a continuation of the earlier growth narrative. The stage mix, however, has changed meaningfully.

Angel and seed activity has fallen by about 35%, while later-stage and pre-IPO rounds have become more prominent. Capital is gravitating towards companies that have already crossed key milestones on product-market fit, revenues, or profitability, and that are either approaching or preparing for public markets.

This can be read as a sign of a market that is maturing: venture capital is still willing to fund growth, but expects more evidence before doing so. At the same time, there is a risk that a higher threshold at the earliest stages may reduce the pool of new experiments. A market heavily skewed towards later-stage “conviction” but thin at seed and pre-seed may look stable in the short run, but could eventually produce fewer new category leaders.

LP Consolidation: Fewer Funds, Similar Capital

Fundraising dynamics also show a concentration pattern. The ET column notes that new fund launches fell by roughly 63% over the period covered, even as total capital raised recovered to about $8.7 billion.

This suggests that limited partners have been consolidating commitments into a smaller group of managers, favouring either longer track records or more specialised strategies. For LPs, this is a rational response to a crowded GP universe; for managers, it functions as a filter that rewards clarity of edge and strategy.

The trade-off is that if too much capital flows to a limited number of funds with similar playbooks, portfolio overlap and herding can increase. Conviction at the allocator level implies differentiated views of risk and opportunity, not simply larger allocations to the same small list of franchises.

Secondaries as a Tool for Portfolio Rebalancing

Secondary transactions increased by about 75%, becoming a more important channel for liquidity. In practice, this means that high-conviction holdings can change hands without forcing companies into premature listings or sales. Early investors or rotation-driven LPs can exit, while new investors take larger positions where they see continued value. The development of a deeper secondary market is one of the mechanisms that allows “holding for longer” to coexist with differing time horizons among investors.

Sectorally, healthcare stands out in the report. Exit volumes in healthcare rose by roughly two-thirds, and exit values were almost four times higher, underlining the sector’s role as a defensive growth area in an otherwise more subdued environment. The absolute numbers still depend on a handful of large deals, so it is prudent not to over-generalise. Nonetheless, the pattern suggests that investors have been more comfortable underwriting risk in this sector through different cycles.

Where “Conviction” Might Focus Next

Looking ahead, the ET column points to three broad themes where more long-duration risk capital is likely to concentrate: artificial intelligence, mobility, and clean energy.

AI spans both horizontal tools and applied use cases in sectors such as financial services, healthcare, logistics, and enterprise software. Mobility covers electric vehicles, charging infrastructure, fleet platforms, and software layers on top of transport networks. Clean energy and climate include renewables, grid technology, storage, and adaptation-related solutions. These areas combine technology with tangible real-economy applications and align with India’s policy priorities and capex plans.

The main risk flagged in the commentary is that once a theme acquires a “conviction” label, weaker businesses can still attract capital by association. The discipline currently being applied to unit economics, execution quality, and governance will need to be maintained if these hotter sectors are to avoid a re-run of earlier hype cycles.

What Will Really Prove “Conviction”?

Taken together, the data support the idea that India’s private markets are moving away from a purely momentum-driven phase. Deal activity has become more selective, average ticket sizes have increased, domestic participation has grown, secondary markets have deepened, and fundraising is concentrating in fewer, more established or specialised hands.

The more important test will not be visible in a single half-year dataset. It will show up in how capital behaves when conditions become more volatile again. If funding remains available for fundamentally sound but temporarily out-of-favour companies, if investors continue to support well-run managers through more difficult cycles, and if secondary markets are used to re-balance exposure rather than to exit in panic, then “conviction investing” will look less like a slogan and more like an embedded habit.

For now, the numbers point to a market that is more disciplined and more discriminating than it was during the previous cycles. They also highlight that this discipline is still evolving and uneven across stages and sectors. The direction of travel is clear; how far it goes will depend on the next few cycles.

Research Analyst

Simran Mehla

Frequently Asked Questions

Q: What does “conviction investing” mean in this context?

A: In this context, “conviction investing” refers to investors deploying larger amounts of capital into a smaller set of opportunities where they see stronger fundamentals, clearer unit economics, and better visibility on profitability or exits, rather than spreading money widely across many deals.

Q: What are the main shifts the recent data highlights in India’s private markets?

A: The data cited in the Economic Times piece points to fewer overall deals, larger average ticket sizes, more rigorous diligence, a higher share for later-stage and pre-IPO funding, and greater participation from domestic investors such as family offices and local institutions.

Q: How have family offices influenced this shift?

A: Following tax parity between listed and unlisted holdings, many family offices increased their allocation to private markets. Their ability to tolerate longer lock-ins and lower liquidity has added a pool of capital that is less dependent on quick exits, although the actual stability of that capital still depends on governance and internal decision-making within each family office.

Q: What is happening to early-stage investing in this environment?

A: Angel and seed activity has fallen, while later-stage and pre-IPO rounds have become more prominent. This suggests a market that is more demanding about proof points before backing new companies, but it also raises the risk that fewer very early-stage experiments get funded.

Q: Why are secondary transactions getting more attention?

A: Secondary transactions have increased significantly, becoming an important liquidity channel. They allow early or rotation-driven investors to exit while others increase exposure to companies they still consider attractive, without forcing the company itself into a sale or listing.

Sources

1. The Economic Times