Steep valuations push India healthcare capital beyond hospitals to devices, diagnostics

Buyout investors active in Indian healthcare are steadily redirecting money away from hospital chains and into medical device makers, while lab and diagnostic testing businesses are also drawing renewed attention. The shift is being driven less by weakening interest in hospitals and more by how expensive hospital assets have become, even as overall deal-making across the healthcare space stays brisk.

Hospitals have not fallen out of favour entirely. Expanding health insurance coverage and a persistent shortage of quality beds relative to demand continue to make the segment appealing. Mayur Sirdesai, a founding partner at Somerset Indus, pointed to the steep climb in hospital valuations over the last two to three years as the main reason funds are now casting a wider net. He described medical devices as an emerging area where investors are building consolidation platforms by combining smaller businesses under one roof, and said diagnostics is regaining favour partly because it has fewer publicly listed competitors and offers clearer paths to an eventual exit.

Tata Capital Healthcare Fund holds a similar view, ranking medical devices and contract development and manufacturing organisations, commonly known as CDMOs, among the healthcare segments it finds most compelling right now. Visalakshi Chandramouli, who leads the fund as managing partner, attributed the appeal of medical devices to a combination of robust demand within India, a push to replace imported products with domestically made alternatives, and growing export potential. She linked CDMO momentum to the broader China Plus One sourcing shift and to global drugmakers outsourcing more of their manufacturing. Even so, pharmaceuticals, hospitals and diagnostics continue to pull in capital as well, underpinned by structural demand growth and expanding insurance penetration.

A sector that keeps drawing capital
Healthcare has been among the most active areas for private equity dealmaking in India for some time. Tata Capital Healthcare Fund pegs annual private equity inflows into the sector at close to $6 billion over the past five years, spread across roughly 120 deals a year.

Exit activity has picked up in parallel. Healthcare-related exit proceeds climbed nearly fivefold, from $1.2 billion in FY19 to $6.2 billion in FY25, and FY26 has already generated about $5.6 billion in exits so far. Healthcare made up a fifth of India’s high-value private equity exits in 2025, contributing four of the fifteen largest deals of the year.

Even so, pricing remains a sticking point for many investors. The BSE Healthcare Index currently trades at roughly 44.3 times earnings, more than double the 21.2 times multiple commanded by the broader BSE Sensex. Hospitals have seen the steepest run-up in valuations of any healthcare sub-segment, a reflection of strong demand set against a limited supply of quality assets. Sirdesai noted that capital available for healthcare deals remains plentiful, but said funds are reluctant to stretch on price simply to close transactions, arguing that the sector’s growth tends to be steady rather than explosive, which makes overpaying difficult to justify against the returns a deal ultimately needs to deliver.

Outlook
Investors broadly continue to view Indian healthcare as a durable long-term growth story. Forecasts cited in the sector point to annual growth of around 12 per cent over the next five years, with the potential to draw upward of $30 billion in fresh private capital during that period. A number of investors expect medical devices, rather than hospitals or pharmaceuticals, to emerge as the segment generating the most value over the coming decade, as India’s hospital network keeps expanding and domestic manufacturing of devices scales up.

A conservative read on the numbers
The case for a rotation toward MedTech and diagnostics rests on a fairly simple valuation argument rather than any evidence that hospitals are becoming less profitable. Hospital multiples have risen the fastest specifically because demand and bed shortages remain acute, and that same scarcity is what is now making funds hesitant to keep paying up. A sector-wide earnings multiple of roughly 44 times, more than double the Sensex’s multiple, is a meaningful premium, and only a portion of the roughly $6 billion in annual healthcare private equity deployment is likely to move toward MedTech and diagnostics in the near term, since hospitals, pharmaceuticals and diagnostics are all still described as continuing to attract capital. The 12 per cent CAGR and $30 billion five-year capital estimates are industry projections rather than figures with a demonstrated track record, and the widening gap between hospital valuations and those of medical devices and diagnostics could narrow again if investor demand simply follows the money into the newer favourites.
MB Bureau