Private Equity Withdrawals and the Indian Economy
Samir Arora, founder and fund manager at Helios Capital, believes that private equity (PE) withdrawals may be a significant factor behind the sharp decline in net foreign direct investment (FDI) in India. In a recent tweet, Arora noted that net FDI fell by 62% to $10.58 billion in fiscal year 2023-24 (FY24), despite gross FDI reaching $71 billion. He attributed this discrepancy to large repatriations by PE funds, suggesting that this trend could worsen if India continues to prioritize PE over foreign institutional investor (FII) funds.
Arora argues that attracting "real FDI money" that generates a steady stream of dividends is a more sustainable strategy than relying on PE funds or FII money, which tend to be more volatile. He believes that relaxing capital gains taxes would attract FII money and benefit the Indian stock market.
Meanwhile, reports suggest that the Indian government may consider tweaking the capital gains tax structure, which could impact investor sentiment. The Reserve Bank of India (RBI) has also transferred a record Rs 2.1 trillion as dividend to the government, which could be used to increase spending on infrastructure or social programs.
Overall, the Indian economy faces several challenges in attracting and retaining foreign investment. While PE funds have played a role in recent years, their impact on long-term growth remains uncertain. The government's policies and the overall economic climate will play a crucial role in determining the future of FDI in India.