Private equity investors in India are increasingly integrating artificial intelligence into their investment analysis and strategies, with AI now becoming a core component of the investment thesis. According to reports from The Economic Times, the question is no longer whether a target company uses AI, but how AI could affect its revenues, margins, competitive position and exit prospects over the next four to five years. Shyan Mukerjee, Partner and Technology Sector Leader at EY-Parthenon, India, told ET Online that the biggest shift is that PE diligence has moved from asking 'Is this a good business?' to asking 'How will AI reshape this business, and can management capture that value faster than competitors?'
AI technology is enabling private equity investors to conduct more comprehensive and detailed analysis of target companies. Naresh Biyani, Founder and CEO of Capwise Financial Services, told ET Online that the real shift is from sampling to full coverage, allowing investors to examine much larger volumes of data and identify patterns that may be difficult to identify through manual review. AI can be used to interrogate data rooms at scale, compare terms across customer and vendor contracts, analyse entire ledgers for revenue-recognition patterns, and test management claims against customer sentiment. This comprehensive approach can bring issues to light earlier that may otherwise remain buried in the long tail of a business, with AI identifying change-of-control or exclusivity clauses, discount leakage, and deterioration in working capital by geography or concentration within seemingly diversified businesses.
Investors are actively examining whether companies are overstating their AI capabilities, with Buyers actively testing for AI-washing in information memoranda, as noted by Biyani. The assessment has expanded into what EY-Parthenon describes as AI-readiness and AI-impact diligence, with investors examining the potential impact of AI on the market, the maturity of AI within the product and technology stack, AI-enabled R&D, operational adoption and the readiness of the workforce and management team. According to reports from The Economic Times, this comprehensive approach helps investors identify inconsistencies or previously unseen value-creation opportunities by connecting information that is usually examined separately, such as financial data, customer behaviour, contracts, operational metrics and management commentary. Ashish Taneja, member of the Indian Venture and Alternate Capital Association (IVCA) and Founder and CEO of growX ventures, noted that you don't need to be an AI company for AI to materially change your investment case anymore.
For investors, three key questions matter: can AI take costs out of the business, can it create new revenue, and can it disrupt the business before the investment horizon ends. As reported by The Economic Times, this is especially relevant for businesses built around repeatable information work, including IT services, BPO, financial services, healthcare, software and professional services. However, the economic benefit may be split between the service provider and its customer, with the question being 'Who actually captures the value created by AI, the company or the customer?''. Grant Thornton's 2026 AI Impact Survey highlights an 'AI proof gap', explaining that organisations may be deploying AI without sufficiently strong strategy, governance and measurement frameworks to demonstrate returns. Taneja emphasized that the test ultimately has to be financial, looking at revenue per employee, cost to serve, conversion rates, churn, product-development economics and gross margins. If AI creates a new product, investors need to know whether customers are actually paying for it, and if it reduces costs, they need to establish whether the savings persist through the investment period.
AI is transforming different facets of private equity by automating deal sourcing with data-driven insights, accelerating due diligence through automated document analysis and optimising portfolio management with predictive analytics and continuous monitoring. According to The Economic Times, for portfolio companies, the opportunity can extend to finance, procurement, customer service and other back-office functions. Nishesh Dalal, Deloitte South Asia's Private Equity Leader, noted that AI is still at a nascent stage of adoption in Indian PE but is already being used across deal sourcing, diligence and portfolio management. Bain & Company's India PE Report 2026 similarly identifies AI as a core investment lens and a value-creation lever, with PE firms looking at automation, productivity, pricing optimisation and intelligent operations alongside opportunities in AI infrastructure. The bigger change is not simply speed but the scope and depth of analysis, with KPMG's 2026 Global M&A Outlook mentioning AI's growing role in target screening, valuation modelling, competitive intelligence, contract review and risk monitoring.
