Sultanate of secondaries: Surge in secondary transactions in India’s private market 

Secondary transactions—share transfers from existing shareholders to new / existing investors—have become a defining feature of India’s private markets in 2024–2025. In contrast to primary issuances that inject fresh capital into the company, secondaries deliver liquidity to founders, employees, and early-stage investors, including private equity and venture capital funds.

Secondary transactions are rising because they provide liquidity in a slower primary fundraising environment, enable cap table rebalancing without dilution, address fund-duration concerns and limited partners (LP)’ liquidity constraints, and allow price discovery while deferring valuation-sensitive primaries.

If timed strategically, they also allow an investor to acquire shares after early-stage risks have abated and the business model has been validated. Mounting holding periods, sluggish distributions, and weak exits have pushed LPs and fund managers alike to find new liquidity routes. As a result, secondaries have become one of the fastest-growing deal structures in private markets. 

Globally, around USD 160 billion in fund stakes were transacted last year, according to Evercore, over double the amount since 2019, and 2025 is on track to cross approximately USD 200 billion. Secondaries are now being used not only to secure exits but also to rebalance portfolios and offload exposure to underperformers. Thus, secondaries are becoming a primary tool for portfolio management. According to The Economic Times, secondary market transactions could reach up to USD 20 billion annually in India, further highlighting their importance in India’s growing financial ecosystem.  

Legally, these deals require a careful consideration of transfer restrictions, shareholder rights, competition law thresholds, foreign exchange pricing and reporting for cross-border transfers, tax optimization, and governance continuity. While India-specific private equity and venture capital activity has remained robust, parties are increasingly using secondaries to unlock liquidity for stakeholders. Equity funds approaching end-of-life need realizations, and secondaries allow exits that global institutions are actively pursuing as a strategy in recent times. When primary valuations are contentious, secondary deals establish reference prices, enabling better price discovery for primaries.  

In addition to the foregoing, secondaries help manage talent retention via ESOP liquidity programs and key management incentivization without burdening the company with buyback payouts. New investors can acquire meaningful exposure quickly through secondaries, while companies can streamline their cap tables ahead of strategic transactions or a public offering. In the Indian deal context, mixed or hybrid primary–secondary structures are prevalent. Typically, value unlocking for the buyer in a secondary occurs when there is a meaningful discount to the prevailing fair market value of such shares—sufficient to motivate the buyer to forgo the benefits of a primary transaction and adopt the secondary route instead.

It is commonly observed that in a secondary transaction not facilitated by the company and/ or the promoters, the promoters show significant reluctance to be signatories to the share purchase agreements or to provide any warranties or covenants in their own names. The company in which the shares are being transferred may become a party to such agreement in order to backstop title and authority representations and warranties, but is often unwilling to backstop any business or tax warranties for findings around past breaches that may have come to the knowledge of the buyer during diligence. 

A buyer in a secondary would typically be purchasing the shares at a valuation higher than the valuation at which such shares were originally subscribed to by the seller. Consequently, the buyer is exposed to a risk if the company undertakes a new primary issuance at a valuation that is less than the buyer’s acquisition value (but equal to or more than the seller’s original subscription valuation), as anti-dilution protection will not get triggered unless such value is lower than the subscription valuation. As a result, the buyer’s shareholding percentage in the company will dilute without any corresponding increase in the total monetary value of the buyer’s holdings, effectively disregarding the secondary acquisition price. 

Additionally, the liquidation preference offered for any investment is generally linked to the higher of a shareholder’s pro rata percentage shareholding in the company or a certain multiple of the subscription amount, commonly 1x. This construct typically excludes the price paid by a shareholder for a secondary acquisition of shares, which may be significantly higher than the subscription price, especially in fundraises by late-stage companies. This poses a risk to the buyer if a liquidation or winding up of the company were to occur at a valuation lower than the acquisition price, as such buyer would then receive only the higher of the subscription amount or the amount based on the buyer’s pro rata shareholding, disregarding the price paid in the secondary. 

In a shareholders’ agreement, carve-outs to most-favoured rights are often linked to the primary subscription amount paid by such investor to the company and the primary subscription valuation, disregarding the secondary acquisition valuation and the amount paid in a secondary—even though both the secondary acquisition amount and valuation may be higher than the primary amounts. Thus, the most-favoured rights status will not be available to such a buyer in a secondary. Similarly, where two or more buyers are purchasing shares from the same seller, or where a seller is only partially exiting, limitations around multiplicity of rights may pose significant challenges in deciding the inter se entitlement of rights between the  buyers or between the seller and the buyer.

For instance, key shareholder rights such as inspection, audit, reserved matters, and right of first refusal—which may typically be offered by default to a shareholder in a primary issuance—will now have to be negotiated by the buyer with the seller for assignment in a secondary. Also, in secondaries, a buyer may be subjected to a drag (full or partial) with no guarantee of tag-on-drag or any floor price protection. These existing constructs are unlikely to be re-negotiated for the buyer in a pure-play secondary. 

Globally, secondaries are booming relative to primaries. Dedicated secondaries funds have enabled competitive pricing and scale on deal execution. Secondary transactions have now become strategic instruments for India’s unlisted companies and their investors. They address liquidity for key management, exits for aging funds and LPs, valuation benchmarking, and cap table rationalization ahead of large primaries, strategic sales, or a public offer. The data and market infrastructure reflect a broader global shift toward liquidity solutions in private markets, with India’s resilient financial ecosystem actively incorporating secondaries into regular dealmaking.   

Shah and Rustagi are, respectively, Partner and Associate at the law firm IC RegFin Legal, based in Mumbai. Views are personal.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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