It has been bad news all the way for the Indian economy since the beginning of 2012 – high inflation, low growth, high interest rates, a sliding rupee. The same should have held true for the private equity industry. Yet the PE industry has sprung a surprise by investing $2.4 billion in Indian companies in first six months of 2013, a 14 per cent increase compared to the $2.1 billion in the same period last year. This is primarily due to the interest of foreign PE funds in this country. Investment by foreign PEs has seen a 40 per cent increase in the first half of 2013/14 from that in the corresponding period last year. In contrast, their Indian counterparts have been sluggish so far with a 27 per cent decline in investments over the same period.
However, investors continue to remain wary of India-focused funds. The first half of 2013 saw just $228 million of fresh capital infused, as compared to $1.6 billion in the same period in 2012. Investors prefer pan-Asian funds which invest across emerging economies in the region instead of a single country like India. The attractiveness of pan-Asian funds is expected to continue for a while, at least until a larger proportion of past investments in India are returned to investors.