Many sponsors and investment managers are considering using offshore routes to invest in India instead of setting up alternative investment funds (AIFs) in the country. This shift is driven by regulatory uncertainty, tighter regulations, and higher costs associated with AIFs in India.
RBI’s recent recommendations and a regulatory note questioning the FDI policy have further spooked investors. Despite changes in 2015-16 that allowed AIFs to attract foreign capital more easily, new regulations are making managers wary. Offshore funds offer a more stable regulatory environment, though tax considerations remain important.
GIFT City is emerging as a viable alternative due to its regulatory stability and tax benefits. However, AIFs are still needed for raising funds from Indian investors. The AIF industry has seen significant growth, with a 35% CAGR over the past five years.
Loosely speaking, Nifty is a good way to look at how the Indian markets are performing. The same applies to the S&P 500 for US markets. There are several indices for each use. One such index is looking at emerging markets like ours, China, and several other countries—the MSCI Emerging Markets Index (MSCI EM).
Foreign investors look at this index because a growing economy means rapid growth, and who wouldn’t want to benefit from that by investing large sums of money?
As you can guess, this index is pretty important because the flow of foreign capital in a particular emerging market is decided based on it. And, India is set to get $2.5 billion from Foreign Institutional Investors (FIIs) because India’s weightage in the index rose.
Till 2020, India’s weightage in this index stood at 8% and it will now touch 19%. Meanwhile, China’s weightage has dropped from a high of ~40% in 2020 to now 25%.
In April 2024, late-stage funding for Indian startups surged to $545 million, more than tripling from $171 million the previous year, despite a decline in total startup funding in Q1 2024 compared to Q1 2023.
Early-stage funding fell sharply to $120 million from $259 million. This late-stage funding boost, largely driven by Meesho and API Holdings’ Series F rounds, is expected to spur hiring and enable companies to expand and solidify their market positions.
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