Funds in flux

Regulatory obstacles and systemic turbulence disrupt the dealflow, yet India retains its allure to private equity investors

Alfred Romann reports

One of the many paradoxes of India is that widespread optimism about the country’s future growth is accompanied by increasing skittishness among private equity (PE) investors.

So while Aparajit Bhattacharya, a partner at Hemant Sahai Associates in Delhi, believes “the fundamentals that drive investment into the country remain sound,” Yash Rana, a partner at Goodwin Procter in Hong Kong, says, “recently we have noticed a subtle shift in Indian private equity activity” that suggests “activity in India has decreased”.

In January and February foreign investors pulled US$1.4 billion from India’s stock markets and sent the Nifty 50 index down 17% from the highs it had reached in November. Valuations remain strong, but complicated regulations, corruption scandals and fears over inflation are conspiring to reduce the allure of investing in India.

Some observers, such as Rajiv Luthra, the managing partner of Luthra & Luthra, suggest that the recent outflow of funds has been “almost entirely on account of [foreign institutional] investments being scaled back due to a variety of factors, many of them related to global developments”.