Private equity weighs up India vs China amid shifting landscape

Private equity firms have been carrying out multibillion-dollar fundraising rounds for many years now with a focus on China, the world’s second-largest economy, because of the rapid growth levels and abundant opportunities in the powerhouse country.

But with an evolving geopolitical landscape across Asia, things are changing.

Grappling with challenges related to changing dynamics in China, private equity organizations are now exploring alternative investment destinations, with India emerging as a key contender. 

Several factors are consistently being considered when navigating this shifting landscape.

First, China has been cracking down in recent times on various sectors, including tech, education and real estate, which has created uncertainty for investors. 

Regulatory changes and government intervention could potentially pose significant risks to the profitability of investments in China. Unsurprisingly, global investors are closely monitoring the regulatory environment and adapting their strategies accordingly.

Second, ramping up investments in India is increasingly seen as a diversification strategy. 

While India presents its own set of challenges, such as a complex regulatory environment and bureaucratic hurdles, it does offer a different risk profile compared with China. 

As such, investors are carefully assessing the risk-reward trade-off between China and India and many are considering diversifying their portfolios across the two nations to spread risk.

Third, India is one of the world’s most populous countries, with a growing middle class and a large consumer market. It offers a wide range of investment opportunities in sectors such as technology, health care, renewable energy, and e-commerce. 

Global investors should evaluate the potential for growth and profitability in these sectors and align their investments with India’s long-term economic prospects.

Fourth, private equity firms typically have a horizon for their investments, and exit strategies are crucial for realizing returns. 

Understanding the exit landscape in India, including such options as IPOs (initial public offerings), secondary sales, or trade sales, is essential for global investors planning to enter the Indian market. Many analysts have argued that these exit strategies are often easier to execute in India than in China.

Fifth, investing in multiple countries involves exposure to different currencies. Currency fluctuations can impact returns, so investors typically opt to have strategies in place to hedge against currency risks, which can include operating in more than one jurisdiction.

India’s political environment can vary at the state and national levels, and understanding the political landscape and its potential impact on business operations is crucial for long-term investors. That said, the political landscape is generally considered to be stable and certain – two factors that appeal to global investors, such as private equity firms.

In summary, global investors seeking to diversify away from China and explore opportunities are increasingly looking to India. While India offers considerable potential, success requires a strategic and informed approach to investment in this dynamic and rapidly evolving economy. 

It will also, we expect, take at least another five years before the subcontinent can truly rival China largely due to is its massive market potential. 

With a population of more than 1.4 billion and a growing middle class, China offers a vast consumer base for businesses to tap into. Rising incomes and increasing urbanization have fueled demand for various products and services, providing ample opportunities for investors across sectors such as technology, health care, and consumer goods. 

This is combined with Beijing’s proactive policies, such as stimulus measures and targeted reforms, which have effectively supported economic growth and stabilized market conditions.

Nigel Green is founder and CEO of deVere Group. Follow him on Twitter @nigeljgreen.