Financial institutions, including insurers and pension funds, are likely to play a bigger role in India's private equity market as policy support for long-term domestic capital gathers pace, a top executive at TVS Capital Funds said.
Domestic investors accounted for 52.7% of capital in India's Category I and II alternative investment funds as of March 2025, the closest proxy for private equity and venture capital fundraising, industry estimates show.
High net worth individuals, family offices and public and private institutions drove most inflows, while contributions from insurers and pension funds remained limited.
"The government itself is investing Rs 1 trillion ($10.88 billion) via the RDI (Research, Development and Innovation) fund," Krishna Ramachandran, a managing partner at TVS Capital Funds told Reuters on the sidelines of the Indian Venture and Alternate Capital Association conclave in Mumbai.
"Such sovereign backing could strengthen confidence among institutions considering commitments to private equity and other forms of long-term capital," Ramachandran added.
TVS Capital, which has commitments of about Rs 70 billion through its investments in funds, has historically raised rupee capital, backed domestic businesses and attracted investments from more than 10 financial institutions, including banks.
Insurers have used less than 1% of their permitted AIF limit, analysts say. EPFO and NPS investments remain negligible, meaning broader participation could bring a large pool of long-term rupee capital into the market and reduce reliance on offshore funds.
Insurance companies in particular have room to increase allocations, Ramachandran said, noting the current Insurance Regulatory and Development Authority of India limit for such investments has not yet been fully used.
Under IRDAI rules, life insurers can invest up to 3% of their controlled fund and general insurers up to 5% of investment assets in AIFs, although the industry has used less than 1% so far.
Private equity can generate stronger returns than treasury portfolios, especially for life insurers with long-term liabilities, he said.
"Pension and NPS capital could be the next major pool to open up," he said, a significant development because it would bring in a large base of patient, long-duration capital.
Ramachandran said a framework being developed by the Pension Fund Regulatory and Development Authority to invest in AIFs could unlock part of India's roughly Rs 70 trillion ($762 billion) pension pool.
But even as the institutional base broadens, some segments remain under pressure.
"The lending space is taking a big hit," Ramachandran said, referring to stress across private and listed financial services firms, though he added that TVS Capital remained positive on lending and financial services over the long term.
The firm continues to focus on financial services, enterprise technology and manufacturing, while taking a cautious approach to artificial intelligence, he added.
Ramachandran said TVS Capital recently invested in AI cloud platform startup Neysa along with Blackstone.