Rupee slide to impact investment sentiment in private equity

The depreciating rupee does not bode well for Indian private equity. Since 2012, the consistent currency depreciation and fluctuation, coupled with dipping growth rate has been leading to increased uncertainty and a negative sentiment about India within the global investor community.

This is raising India's risk perception among investors in PE funds (called 'Limited Partners' or LPs), who are now increasing their exposure to other emerging economies such as Indonesia, Taiwan and Malaysia.  

For General Partners or GPs (fund managers) who are looking to return investments to LPs, it is translating into a Catch-22 situation. GPs raise capital from LPs in dollars, invest in rupees and generate returns in dollars. A constant slide in the rupee impacts funds' internal rate of return (IRR) and the timing of their exits. India has some catching up to do on the returns' scenario considering it is lagging behind China. However this disconcerting macro-economic scenario will further impact investment sentiment and future investments.