New Delhi, June 10 -- Artificial intelligence-driven disruption and higher energy costs are emerging as the biggest near-term challenges for India even as the country's long-term investment case remains intact, a top executive at global private equity giant KKR has said.
"India remains an important long-term expression of the EM (emerging markets) consumption upgrade, supported by rising incomes, premiumization, financial deepening and demand for higher-quality services," Henry McVey, partner and head of global macro and asset allocation and chief investment officer of KKR, said in the firm's latest mid-year outlook.
He, however, cautioned that higher energy prices and AI-led disruption in legacy information technology services are creating near-term pressures that could temper growth.
Indeed, the Nifty IT index comprising 10 tech companies such as Infosys, Tata Consultancy Services and Blackstone-backed Mphasis has fallen almost 25% over the past year due mainly to AI-driven fears, according to National Stock Exchange data.
The comments build on concerns McVey flagged during his recent visit to India, where he described artificial intelligence as the biggest near-term swing factor for the country's services-led growth model.
While AI is expected to improve productivity and create new opportunities, McVey believes it is also reshaping traditional employment patterns across outsourcing and technology services businesses.
The broader concern, according to McVey, is that economic growth and corporate earnings are becoming increasingly concentrated in a handful of sectors linked to technology, AI infrastructure and government spending, creating what he describes as a "Divergence Conundrum".
Under this scenario, some industries and companies attract abundant capital while others face increasing pressure, resulting in wider dispersion in growth rates, profitability and investment outcomes.
Despite these challenges, McVey remains constructive on India and Asia more broadly.
He said KKR's recent trips across Asia strengthened its conviction in private equity, infrastructure and corporate credit opportunities across the region, with corporate reforms, AI infrastructure and consumption upgrades emerging as key investment themes.
For private market investors, McVey argued that the next phase of returns will be driven less by financial engineering and more by operational value creation.
"The next leg of returns is likely to be driven by a focus on execution and operational improvement, not by adding additional leverage," he wrote, adding that opportunities are likely to emerge through corporate carve-outs, public-to-private transactions and situations where investors can exercise greater operational control.
The shift is particularly relevant in India, where private equity firms are increasingly looking beyond traditional growth capital investments and focusing on businesses that can benefit from productivity improvements, digital transformation and professionalisation.
Infrastructure, private credit
McVey also highlighted infrastructure as a key beneficiary of changing global investment priorities.
As governments and corporations place greater emphasis on supply-chain resilience, energy security and strategic autonomy, he expects capital flows into power, energy infrastructure and related assets to accelerate.
The growing demand for electricity from artificial intelligence applications and data centres is likely to create long-term opportunities across power generation, transmission and supporting infrastructure, he noted.
Beyond infrastructure, McVey continues to favour private credit and structured capital solutions, arguing that demand for flexible financing remains strong even as capital availability improves.
He said the current environment continues to favour investors that can provide customised financing solutions while maintaining strong underwriting discipline and portfolio construction.
At the macro level, McVey expects the global economy to continue expanding, supported by strong productivity gains, particularly in services industries.
He argued that the productivity cycle remains in its early stages and that AI could become an increasingly powerful driver of corporate profitability over the next several years.
However, he also warned that geopolitical tensions, economic fragmentation and growing competition over critical resources are making the investment landscape more complex.
As a result, investors should focus on quality assets, diversify into areas linked to nominal GDP growth and seek exposure to themes such as energy security, national resilience, AI infrastructure and consumption upgrades.
Published by HT Digital Content Services with permission from VC Circle.