While large deals may have slowed, smaller and early-stage deals are active, especially in AI-focused sectors. Singla noted, “More and more firms, especially on the early stage ecosystem, they are trying to incorporate elements of AI. That space is very active.”He also pointed out other promising sectors. Apart from AI, the consumption sector is expected to grow, financial services offers attractive valuations, and new-age manufacturing, including defence and aerospace, is likely to see strong performance.
Deal volumes and values have been soft for some time. While annual deal values were around $60–70 billion in 2021–22, they fell to approximately $40–50 billion in 2023–24, with a further decline this year.He attributed this to two main factors: the previous focus on growth over profitability led to excessive investments, and over time, firms have realised that underlying businesses need to perform, making profitability the key focus.
He also highlighted that the performance of some high-profile IPOs has caused PE firms to be cautious. “Some of the big unlisted companies, which had a huge fan following in the unlisted domain, did not perform up to expectations post IPO.”
On returns, Singla noted that top-quartile fund IRRs have adjusted over the past three years but continue to be attractive. While these funds operated in the 25–30% range three to four years ago, they are now around 20%.
However, the recent focus on valuation and profitability is expected to drive stronger returns by 2027–28.
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