India Q2 tech investment dips, digital infra and communication stay strong

India’s technology investment landscape experienced a significant contraction in the second quarter of 2025, recording 60 transactions worth USD 460 million—a 34% drop in volume and a sharp 79% decline in deal value compared to the previous quarter, according to the Grant Thornton Bharat Q2 2025 Technology Dealtracker. The downturn reflects growing investor caution amid macroeconomic uncertainties and a marked shift in capital deployment strategies, favouring smaller, targeted deals over large-ticket transactions.

Excluding public market activities, the technology sector saw 58 deals amounting to USD 434 million, reflecting a 35% decrease in volumes and a 61% drop in value quarter-on-quarter. Similarly, private equity (PE) deal volumes dropped 45% to 36, while values slumped to USD 215 million. Initial Public Offering (IPO) activity dropped to zero, and Qualified Institutional Placements (QIPs) were restricted to just two transactions totalling USD 26 million, down from one USD 70 million QIP in the previous quarter.

This recalibration in Q2 underscores increased investor selectivity, focusing on value-driven, smaller transactions rather than large-ticket deals prevalent in Q1 2025, notably influenced by Hexaware Technologies’ USD 1 billion IPO.

M&A Drives Deal Value Amid Caution

M&A activity remained relatively steady at 22 deals, but total deal value more than doubled, rising 133% to USD 219 million compared to the previous quarter. This increase was primarily driven by two large inbound cross-border deals totalling USD 169 million, accounting for 84% of the M&A value for the quarter. Cross-border transactions dominated in terms of value, with 10 of the 11 international M&A deals involving US-based counterparties. In contrast, domestic transactions formed 50% of M&A volumes, reflecting continued interest in local platform consolidation.

One of the quarter’s most notable M&A deals was the acquisition of Sonata Software in a USD 73 million inbound transaction, which contributed 73% of the total tech services M&A value. Zaggle Prepaid Ocean Services completed two domestic strategic acquisitions in the SaaS and tech services segments, indicating that even within a conservative market environment, vertical integration and IP-led deals remain on investor radars.

This shift towards fewer but strategically significant transactions suggests a more measured approach, where buyers are prioritising synergy, market fit, and long-term scalability.

PE/VC Interest Narrows Due to Valuation Gaps

 The PE/VC segment saw a dramatic pullback in Q2. Deal volumes declined from 65 to 36, while total investment dropped 79% to USD 215 million. The absence of standout, large-scale control investments—a key feature of Q1 2025—was a major factor behind the decline.

In Q1, the sector saw an outlier deal in Qburst Technologies, which raised USD 200 million from Multiples Alternate Asset Management. It was the largest control investment in the tech services space since Q1 2023. By contrast, Q2 recorded only four such deals in tech services, totalling USD 27 million. The decline reflects the conservative stance of Limited Partners (LPs), tighter funding cycles, and persistent valuation mismatches.

Nonetheless, early- and growth-stage investments in capital-efficient models—particularly in B2B tech and SaaS—continued to attract investor attention. The SaaS segment, for instance, recorded 12 M&A deals worth USD 119 million, driven by vertical SaaS consolidation strategies. PE/VC interest in SaaS halved in volume and dropped 88% in value to USD 81 million, as investors steered clear of inflated valuations and instead focused on niche, scalable products.

Digital Infrastructure Stays Relatively Stable

Unlike other sub-sectors, the communication and digital infrastructure space showed relative stability in Q2. Telecom infrastructure, data centres, fibre rollout, broadband connectivity, and cloud services continued to attract strategic and private capital. Key investments focused on expanding 5G infrastructure and meeting the surging demand for Internet capacity in both urban and underserved regions.

However, M&A activity in tech services slumped by 60%, reaching its lowest volume since Q4 2023. The drop in deal volume was offset partially by stable value, with tech services M&A totalling USD 100 million—again supported largely by Sonata Software’s acquisition. While volume dropped, the transactions executed were more strategic in nature, often driven by consolidation objectives and cross-border scale ambitions.

GoKwik stood out in the startup space, attracting strategic capital in an otherwise conservative quarter, as investors took a closer look at fundamental performance metrics and sustainable business models.

Quantum and Space Tech Attract New Attention

Beyond traditional sectors, the report highlights growing strategic interest in emerging areas such as quantum computing and space technology. Although deal volumes remained low, these sectors attracted focused capital with high long-term potential.

Investments in quantum technology were directed at both computing and secure quantum communication infrastructure—fields critical to cryptography and national security. These early-stage, high-gestation investments indicate that strategic investors are beginning to position themselves for India’s future in deep tech.

The space technology segment also garnered investor attention, particularly in satellite communications and private space missions. Broadband infrastructure via satellite, especially for rural connectivity and digital inclusion, was a key focus. Investors engaged with satellite startups and communication platforms that support India’s ambition to become a globally relevant space economy.

Investors Adopt Sharper Diligence, Selective Conviction

Overall, Q2 2025 showcased a technology investment environment marked by recalibration. Investors displayed heightened scrutiny, prioritising realistic valuations, targeted due diligence, and sustainable growth metrics over scale.

According to Raja Lahiri, Partner and Technology Industry Leader at Grant Thornton Bharat LLP, “Whether it is SaaS, AI-led infrastructure, or outbound consolidation, the capital is selective but serious.” He noted that Indian technology remains a long-term growth engine, but the path forward will be shaped by deeper diligence and more grounded investment theses.

The report highlights that even during a slowdown, segments aligned with India’s digital priorities—such as data infrastructure, SaaS, quantum computing, and space—continue to attract committed capital, albeit cautiously. Investors are not retreating; instead, they are choosing their battles more carefully.