India is unique among Asia’s major economies in that its growth during the past few decades has been a story of services rather than manufacturing and industrials. This appears to be changing in the current macroeconomic and geopolitical climate – and quickly. The trick for investors targeting this transformation is not to overestimate how fast.

In private equity, few signals affirm the onset of a theme as clearly as the arrival of specialist GPs. Early movers in India include Global South Capital, which launched its debut manufacturing fund last year with an INR 2.5bn (USD 26m) target and INR 2.5bn greenshoe. A first close came last December.

Founder Mragank Jain, formerly of Standard Chartered Private Equity, now Affirma Capital, describes the opportunity set partially in terms of flick-of-the-pen regulations that have instantly animated relatively dormant domestic industries like electronics and defence. But he also acknowledges these moves are set against a slower evolution in culture and mindset.

“When I joined the PE industry 20 years ago, we were told India is the back-office of the world and China is the factory of the world. That has been so reinforced into the psyche of PE professionals, they don’t understand manufacturing and have not built relationships. There were stated policies in most PE firms that they will not do industrials or manufacturing,” Jain said.

“You cannot sit in glass offices and do manufacturing like private equity has been doing in technology and financial services, which is where most of the capital has gone. It’s a little dirty by nature. You have to deal with blue collar issues. You have to get down on the ground.”

A rising tide

Confidence in Indian manufacturing is rooted in global trends around onshoring, energy security, reindustrialization, and China-plus-one supply chain diversification. These drivers are refracted locally through government agendas such as Atmanirbhar Bharat (self-reliant India) and Viksit Bharat (developed India), which have stoked industrial supply chain indigenization.

Investors variously point to encouragement in the form of streamlined approvals processes, improved coordination between ministries, the rise of the domestic space industry, steady traction in domestic consumption, the receptiveness of local stock markets, and, more recently, the destabilization of services as an investment destination amid artificial intelligence (AI) disruption.

The most widely cited government initiatives are the Production-Linked Incentive (PLI) scheme and the Electronics Components Manufacturing Scheme (ECMS). These have coincided with significant infrastructure and logistics improvements. Since 2014, the number of airports has more than doubled and major seaport capacity has roughly doubled, according to official data.

Manish Kejriwal, founder and managing partner at Kedaara Capital, observed that manufacturing has become an essential part of generalist private equity strategies in India on the back of government programmes, increasing deal flow around domestic companies’ growth agendas, and succession issues among family-owned groups.

“Both large conglomerates, as well as the smaller first, second, and third-generation manufacturing companies are focusing on building up domestic manufacturing capacities,” he said. “Financial sponsors have large war chests to deploy in India. They need new investment thesis – manufacturing is one of them which promises secular growth.”

Raghav Ramdev, a managing director and head of the manufacturing strategy at ChrysCapital Partners, described the sector as a growth driver, capable of delivering 25% returns but not necessarily a must-have for local private equity. He defined appropriate exposure as about 20% of the overall portfolio.

ChrysCapital sees deal flow as ample – two of its last four deals are manufacturing – but valuations have emerged as a concern. Auctions are the norm. Proprietary transactions are scarce.

In February, when the firm acquired a 30% stake in diversified contract manufacturer Nash Industries, it fended off competition from two global funds, according to Ramdev. The transaction reportedly gave Nash an enterprise valuation of INR 60bn-INR 63bn (USD 676m-USD 711m).

Execution issues

This activity comes with acknowledgment that China and some other Asian markets remain real rivals in growth areas like automotive and high-tech equipment as well as in low-end consumables such as textiles. Export competitiveness for high value-add industries is another risk, with Ramdev noting that governments are generally pushing to localize manufacturing of products such as medical devices.

“How do you navigate cyclicality? The automotive market, for example, may be great for a few years, and then if it goes through a 12-18-month slump, or even two years, over a five-year window – at what point are you backing that business?” he said.

There is also a general hesitancy around greenfield risk given the extended timeframes of new plant builds, although this is balanced with a desire to find workarounds for the sake of accessing high-return opportunities. Multiple investors said they would invest in a greenfield project if it was an expansion effort by an established company with stable economics.

“Conducting due diligence on a manufacturing business is complicated and nuanced. For example, it’s capital intensive, so if you’re looking at a supplier or producer, one of the things you have to decipher is how much of the customer relationships are driven by outsourcing capital intensity versus overall value-add beyond that,” said Amit Jain, a partner and head of India private equity at Carlyle.

“At times, these customers may be loyal, but they’re not financially attractive when you factor in the level of capital intensity. It might be attractive to a family owner who wants to secure cash flows, but it may contribute limited franchise value to the business.”

Moreover, the policies that underpin the opportunity can themselves be spoilers. Deepak Padaki, president of Catamaran, the family office of Infosys co-founder Narayana Murthy, notes that required automation upgrades can be at odds with government initiatives around factory job creation. This raises questions about whether some incentives can be relied on as operations integrate AI.

Likewise, conflicting government agendas can undermine business model stability. This played out last year with battery tech start-up Log9 Materials, a Catamaran portfolio company. Log9 was encouraged by the government to indigenize battery cell production, but this was not aligned with a separate government initiative to increase the number of electric vehicles (EVs) in India.

When import restrictions on Chinese EVs were loosened and cheaper Chinese battery cells came across the border, Log9’s economics became untenable. Local media reported in November the company had gone into insolvency.

Families first?

Catamaran’s enthusiasm for the sector remains unquelled, however. It aims to build out an Indian manufacturing ecosystem by backing early-stage VCs leaning into the sector and direct investments into later-stage companies, especially around precision components and electronics for export.

Indeed, a generalist GP that does not have a manufacturing investment programme is less likely to receive a fund commitment. “All the funds that have come to us in the last six to eight months have at least one sleeve of manufacturing or deep tech in their mandates,” Padaki said.

The firm is actively seeking partnerships with global manufacturing groups that need a local partner to enter India. It is hoped this will repeat the success of a non-manufacturing joint venture with Amazon from 2014 to 2021, albeit on a smaller scale. Padaki observes that the biggest manufacturing players in the region could enter India on their own.

“We’ve started seeing a trend of mid-sized companies that don’t have the confidence to come into India on their own, but they’re major suppliers to large OEMs [original equipment manufacturers] around the world. So, they need a partner, which we can offer. If they need a partner with a local manufacturing company, it could be a three-way joint venture,” he said.

Local family offices will likely fund much of India’s private markets manufacturing buildout in the years to come. Rohan Paranjpey, head of alternative investments at multi-family office Waterfield Advisors, observes that the global pullback of capital from India funds has prompted managers to target domestic capital looking for a sectoral story. But data doesn’t always help.

Private equity Investments in India manufacturing has been sporadic in the past decade, peaking at USD 2.6bn in 2018 following a low of USD 69m in 2017, according to AVCJ Research. The running total for 2026 is USD 386m, down from a USD 2bn total for 2025.

“Manufacturing sounds exciting but I’m not sure what the addressable universe for the private market players is going to be, especially in the middle market and growth stages,” Paranjpey said.

“We have a few across our GP portfolios – mostly precision manufacturing and components – and they’re looking good. But it’s only a handful so far. The China-plus-one story hasn’t ramped up as quickly as expected in this space.”

Still, the sector’s deal drivers are seen as sturdy, especially in terms of succession opportunities and financing corporate ramp-ups.

Essential auto

Most of the optimism for private equity is in automotive. As India’s most established manufacturing segment, it is considered ripe for succession opportunities and solutions related to expiring joint ventures. Under pressure to evolve toward EVs, companies are expected to increasingly seek out private capital.

The opportunity set has been dramatically demonstrated by Carlyle through Highway Roop Precision Technologies, an automotive components platform formed through the merger of two local businesses. There are similarities to Sona Comstar, an investment led by Jain in his prior role at Blackstone. A staged exit following an IPO in 2021 that generated proceeds of more than INR 140bn.

Jain emphasized the importance of infrastructure in India’s manufacturing buildout. This includes ready access to energy, where per unit power costs have come down consistently due to the government’s focus on renewables.

“Our auto components platform runs forging, stamping, and multiple machining processes. Each of these is energy-consuming, and if we lose even a minute of energy, entire production lines can be shut down. Today in India, we can put a plant pretty much anywhere and be assured of 100% energy availability,” he said.

Global South’s Jain points to middle-market opportunity in automotive in the form of Craftsman Automation, a powertrain maker he backed in 2012 while at Standard Chartered Private Equity.

A commitment of around USD 15m delivered a 7.5x return, according to Jain. He added that the company’s market capitalisation has increased by more than 40x since 2012, excluding capital raised in the public markets following an IPO of around INR 8.2bn in 2021.

Pharma to electronics

Pharma, India’s second-largest manufacturing category, is benefiting from efforts to diversify away from dependence on imports from China. India now has more drug manufacturing plants approved by US regulators than any country outside of the US itself. Approximately 40% of US generics are manufactured in India.

True North, which wants healthcare and pharma to make up 30% of its portfolio, sees opportunity across active pharmaceutical ingredients (APIs), generic drugs, and contract development and manufacturing organizations (CDMOs). It is currently pursuing two opportunities in the sector, one of which is in generics production. It also considers related non-manufacturing assets such as pharmacies.

In May, the firm acquired a minority stake in API manufacturer Embio for an undisclosed sum. It cited the company’s differentiation as a specialist in controlled substances across therapeutic areas such as nasal decongestants, ADHD, Parkinson’s diseases, and anti-epileptics. The capital will be used for R&D and to scale a CDMO business.

“Very few players exist because controlled substances mean processes and quota approvals are so tough that it is not easy for new players to jump in and build business here,” said Satish Chander, a partner at True North. “Customers are extremely sticky; these are customers who have stayed with the company for the last 10-12 years.”

Electronics is the smallest but fastest growing category, largely validated by Apple and Samsung deciding to make mobile phones in India as of 2017 and 2018, respectively.

Private equity exposure to operations of this scale will be mostly derivative. Recent examples include Aequs, an aircraft parts maker now supplying Apple that has raised more than USD 125m in private funding from Catamaran and Steadview Capital among others. It completed a INR 9.2bn IPO in December.

The prevailing themes here are import substitution from the Indian perspective and supply chain diversification from the global perspective. Loosely defined as encompassing everything from white goods to semiconductors, it is potentially the country’s largest manufacturing opportunity set.

Precision components – a theme cutting across automotive, electronics, defence, space, and medical devices – has emerged as a priority for several investors contacted for this story. Global South’s Jain said he is aware of two pending precision components buyouts related to the energy industry in the range of USD 250m-USD 300m each.

Innovative approaches

Recent action in this space helps illustrate how private equity can change up risk profiles in manufacturing through creative entries and business modelling.

Avataar Ventures led a USD 28.5m Series B round for Ethereal Machines in June. Peak XV Partners, which co-led a USD 13m Series A two years ago alongside Steadview, also joined the round. The key to the deal is Ethereal’s so-called manufacturing-as-a-service model.

The company is one of the few globally to produce advanced automated machine tools for precision manufacturing known as five-axis computer numerical control (CNC) machines. It claims to be able to manufacture CNC machines for less than a third the cost of traditional suppliers, but it does not sell them. It collects them in-house to run a contract manufacturing business.

Ethereal claims the model can deliver 10x savings to customers in defence and aerospace, semiconductors, energy, and medical devices. Avataar saw an entry into a growth theme with an energy security lens yet limited geopolitical baggage.

“In the last three years, there is always a fear that you may not get the product you want, even though it may be a commodity like a mobile phone or a laptop. So, a country like India is going to spend on building manufacturing plants, even if it’s inefficient. And as time goes on, you keep improving on it. That’s how this market works,” said Avataar founder Mohan Kumar.

“At some point in time, maybe a decade, you will come to a point where you are as good as any player in the globe. Our belief is that’s what’s going to happen.”