Edited excerpts:
India saw a record IPO run over the last two years. How is the pipeline looking?
Globally, the IPO pipelines have slowed in the last few years, and this is the year it is coming back. A lot of it is driven by AI and everything else. The other deal activity is M&A which has been very ferocious in the US, driven by high valuations and a lot of ease of credit liquidity. When you take that to India, it is slightly different. When rest of the world was quiet on IPOs, Indian IPOs were off the charts for last two years. This year, Indian IPOs are slow.
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Why are foreign investors turning cautious on India?
The perception outside is that India is currently behind in the AI race. Broadly speaking, 45% of the urban workforce in India is financial services and IT services. All those are at risk of AI. Valuations have moderated, but not enough. Foreign investors are asking whether to invest money in India or relatively more in markets like Korea and Taiwan, which are more directly linked to the AI supply chain. Korea and Taiwan have been rescued, to some extent, by their role in AI.
Does that mean investors are losing faith in India’s long-term story?
We have to distinguish short term volatility from the conviction that I continue to believe everyone still has in India. The demographics are still in our favour. Manufacturing is growing. Infrastructure improvements are visible. I think we underestimate the positives. The conviction in India continues to be very high, which is why some of the largest private equity funds have raised more capital in the last one year for investments in India than ever before. I think FII withdrawal is a short-term effect. We should not confuse that with India’s long-term potential.
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Which sectors do you expect to drive deal activity over the next few years?
The biggest theme globally is AI. You have construction companies benefiting because data centres need to be built, similar is the case for power and energy. Energy is one of the biggest constraints on compute. India can provide renewable energy much cheaper than the US. That’s why companies such as Google are setting up data centres here. Globally, we see deals in the foundation models like OpenAI and Anthropic. We see deals in semiconductors in Taiwan, Korea and the US, and deals in the new cloud compute providers. Those three are completely absent in India. What India does not yet have are large cloud-compute providers or hyperscalers of its own. Semiconductors are at a very early stage. So, India’s opportunity today is energy and data-centre infrastructure.
What worries investors most about India?
The risk is whether IT services companies are doing enough to adopt AI. I fear it is not enough yet. That is a large part of the middle class in India.
What reforms would help attract more foreign capital?
Withholding tax on debt should be better, lower taxes on foreign investors while ease of doing business remains a pain point which needs to be improved. When I travel globally, one of the recurring concerns among investors is the complexity of doing business in India.