In 2025, two mid-sized Indian manufacturers approached the same private equity fund within six months of each other. Both were profitable. Both were growing. One closed at a 14x EBITDA multiple. The other spent four months in due diligence before the fund walked away.
The difference had nothing to do with revenues or margins. It came down to one question: could an outsider understand, verify and trust how the business was run?
That gap is what we call the governance premium and in 2026, it is one of the biggest factors separating Indian businesses that attract capital from those that don't.
Why investors look beyond your profit numbers
When an investor backs your business, they are not just buying today's profits. They are betting those profits will hold through management changes, market downturns and regulatory shifts.
A business with clear systems, independent oversight and reliable reporting gives investors confidence in that bet. One where everything runs through a single founder introduces a risk that is hard to ignore. KPMG's 2025 report on corporate governance for PE-backed companies notes this directly: governance maturity is now a core part of due diligence because it determines actual risk exposure, regardless of what the revenue line says.
What Indian markets revealed in 2025
Mid and small cap stocks came under sustained pressure through 2025, driven by FII outflows, higher interest rates and cautious fiscal policy. The businesses that weathered it best shared one thing: they had built governance structures before the pressure arrived.
Those that hadn't found themselves at a disadvantage not always because their fundamentals were weak but because their structures were invisible to outside capital. In a tough market, opacity is expensive.
Three things that build a governance premium
1. Make your capital decisions predictable
HDFC Bank has sustained a price-to-book ratio averaging around 3x over five years not because it grows the fastest, but because how it allocates capital is consistent and transparent. Investors can model it. Analysts can price it.
PwC's 2026 Corporate Governance Trends report makes the same point: boards that bring real oversight to capital decisions sustain investor confidence when conditions get difficult. Companies lose that confidence fastest when governance exists on paper but not in practice.
2. Build governance structures before regulators force you to
In March 2025, SEBI amended LODR Regulations, inserting Chapter VA with dedicated governance norms for High Value Debt Listed Entities companies with outstanding listed non-convertible debt of ₹1,000 crore and above. The provisions cover board composition, independent directors, related party approvals and mandatory secretarial audits.
As KPMG's Board Leadership Center observed, companies that had already built these structures engaged regulators and lenders from a position of strength.Those that scrambled to comply paid for it in delays, added scrutiny and higher borrowing costs.
Governance built early is an asset. Governance built under pressure is a cost.
3. Let your performance actually be seen
Many Indian businesses perform well but look risky to outside investors because their reporting is inconsistent or incomplete. Investors price what they cannot see as risk and charge for it.
EY India's governance practice is explicit on this: governance benchmarking against Indian and global best practices is now standard in how institutional investors and lenders assess businesses before committing capital. Clean, auditable reporting doesn't just reduce perceived risk it earns better terms.
Where Indian capital is flowing in 2026
PE and VC investments in India crossed $56 billion in 2024, with deal volume surging 54% year on year. Through 2025, that momentum continued, individual months like November 2025 recorded a 31% year-on-year increase.
But this capital is concentrating. It flows toward businesses with clean ownership structures, boards with real independence, decision-making that doesn't rely on one person and reporting that holds up under scrutiny. The businesses on the right side of that line are raising faster, on better terms and at higher valuations. Those on the wrong side are accepting weaker deals or being passed over entirely.
The bottom line
The businesses that attract the most capital in 2026 are not necessarily the fastest growing. They are the ones outside investors can understand quickly, trust over time and price with confidence.
That trust is not a byproduct of good management. It is something you build deliberately and the best time to build it is before you need it.
At Narayan Bhargava Group, we specialise in building exactly these structures from board governance and compliance frameworks to leadership succession and reporting systems so that when capital comes looking, your business is the one it finds.
