PE pivots to MedTech as hospital valuations soar; diagnostics gains

Private equity investors are diversifying into MedTech and diagnostics as rising hospital valuations temper deal appetite, even as India's healthcare sector continues to attract strong capital inflows

Private equity investors are increasingly shifting their focus from hospitals to medical devices (MedTech), while diagnostics is witnessing renewed interest. Soaring valuations in hospital assets are making investors more selective despite strong deal activity across India's healthcare sector. 

Hospitals remain an attractive investment avenue, backed by rising insurance penetration and a widening demand-supply gap. However, Mayur Sirdesai, founding partner at Somerset Indus, said the sharp rise in valuations over the past two to three years has prompted investors to look beyond hospitals. 

"MedTech is another space that is now picking up, with investors creating platforms to roll up businesses," he said, adding that diagnostics is also seeing a revival as investors seek sectors with fewer listed companies and stronger exit opportunities. 

The trend is echoed by Tata Capital Healthcare Fund, which identified medical devices and contract development and manufacturing organisations (CDMOs) as the most attractive healthcare investment themes. According to Visalakshi Chandramouli, Managing Partner at Tata Capital Healthcare Fund, medical devices are benefiting from strong domestic demand, import substitution and export opportunities, while CDMOs continue to gain from the China Plus One strategy and increasing outsourcing by global pharmaceutical companies. 

Pharmaceuticals, hospitals and diagnostics also continue to attract capital, supported by structural demand and rising insurance coverage. 

The sector has remained one of the busiest for private equity. Tata Capital Healthcare Fund estimates Indian healthcare has attracted around $6 billion of private equity investment annually over the past five years across roughly 120 transactions every year. 

Exit activity has also strengthened, with healthcare exit values rising nearly five-fold from $1.2 billion in FY19 to $6.2 billion in FY25, while FY26 has already recorded around $5.6 billion in exits. Healthcare accounted for 20 per cent of India's high-value private equity exits in 2025, with four of the top 15 exits coming from the sector. 

Despite the strong investment appetite, valuations remain a key concern. The BSE Healthcare Index is trading at around 44.3 times earnings, compared with 21.2 times for the BSE Sensex. 

Hospitals have witnessed the sharpest valuation expansion, reflecting robust demand and limited supply of quality healthcare assets. Sirdesai said there is ample capital available for healthcare investments, but investors are unwilling to overpay. "Healthcare grows in a very regular fashion. You cannot keep paying excessive numbers just to get the deal done because ultimately you have to generate returns," he said. 

Looking ahead, investors expect healthcare to remain a long-term growth sector. Industry experts estimate the industry could expand at around 12 per cent CAGR (compound annual growth rate) over the next five years and attract more than $30 billion in private capital with many believing MedTech will emerge as the biggest value creator over the next decade as India's hospital infrastructure expands and domestic manufacturing scales up.