Why Private Capital Is Betting Big on Manufacturing

India’s private equity landscape has long been dominated by tech, consumer, and financial services investments. But a quiet transformation is underway. As global supply chains shift and India strengthens its position as a China+1 manufacturing hub, private equity firms are pouring billions into industrials, supply chains, and specialty manufacturing, betting that this will be the next major wealth creation wave in private markets.

For decades, India’s industrial sector lagged behind its services economy in attracting large-scale private capital. Manufacturing-heavy investment was often capital-intensive, slow-moving, and exposed to regulatory uncertainties. But today, the calculus has changed. With global supply chains diversifying away from China, government incentives driving industrial expansion, and Indian companies moving up the value chain, manufacturing is no longer seen as a slow-burn investment—it is being positioned as one of the most scalable and profitable private equity plays in the next decade.

The data already signals this shift. Private equity and venture capital investments in Indian manufacturing surged to over $15 billion in 2024, a 46.2% increase from the previous year, making it one of the fastest-growing asset classes . These investments span key sectors including electronics, defense, automotive components, chemicals, and pharmaceuticals, many of which are directly benefiting from the Production-Linked Incentive (PLI) schemes introduced by the Indian government.

One of the key drivers of this trend is the realignment of global supply chains. Western multinational corporations, once deeply entrenched in Chinese manufacturing, are actively looking for alternative locations to de-risk their operations. India, with its large workforce, cost advantages, and improving infrastructure, is emerging as a preferred destination for diversification. PE firms that recognize this shift are positioning themselves early, acquiring manufacturing assets, and scaling businesses to become integral parts of global supply chains.

Another reason for private capital’s growing interest in industrials is the rise of high-margin, specialized manufacturing in India. Unlike the traditional perception of manufacturing as low-margin and labor-intensive, today’s industrial businesses involve high-tech components, precision engineering, and value-added production. Sectors like electric vehicles (EVs), semiconductors, specialty chemicals, and aerospace components are attracting capital because they offer competitive advantages beyond just cost savings.

Specialty manufacturing, in particular, is seeing heightened PE interest. With global demand surging for semiconductors, advanced materials, and engineered components, India is now home to companies that can supply these at scale. Many of these firms are family-run, mid-market businesses that require institutional capital to scale, creating perfect buyout and consolidation opportunities for private equity firms.

Beyond direct investments, PE-backed industrial platforms are also driving consolidation across the supply chain. Unlike earlier years, where investors shied away from complex roll-ups, today’s industrial PE firms are building multi-company platforms, acquiring smaller firms, integrating operations, and creating scaled-up national and regional champions. This mirrors the approach that has worked in global private equity industrial strategies, particularly in Europe and North America, and is now being actively replicated in India.

The macro tailwinds for Indian industrials are undeniable. The government’s Make in India push, PLI incentives, and rising global trade partnerships are all accelerating manufacturing expansion. Additionally, capital markets are now more receptive to industrial IPOs, providing a clearer exit strategy for private equity investors. Companies in defense, renewables, and specialty chemicals have delivered strong returns upon listing, further increasing investor appetite for the sector.

While challenges remain—infrastructure bottlenecks, regulatory delays, and the need for skilled labor—private equity firms are increasingly confident that these are solvable problems rather than long-term barriers. Many funds are taking a long-term view, backing industrial companies with 7-10 year growth roadmaps, recognizing that while the manufacturing transformation won’t happen overnight, the upside is significant for those who enter early.

The big question is whether industrial private equity can replicate the kind of returns that Indian tech and consumer investments delivered over the last decade. While manufacturing lacks the rapid scalability of digital businesses, its defensibility, export potential, and government backing make it one of the most compelling investment theses for long-term capital.

For investors looking beyond the well-trodden paths of technology and financial services, manufacturing represents the next big opportunity in Indian private markets. PE firms that move now—securing assets, scaling supply chains, and positioning for global trade flows—may well be at the center of India’s next trillion-dollar wealth creation story.

Data Souce – EY-IVCA PE/VC Monthly trend analysis: December 2024

Frequently Asked Questions