Alternatives Industry – 2025 So Far and Outlook for FY-2026 in India

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The financial landscape of 2025 has been a year of rapid evolution and recalibration. Recent developments—from unfolding global economic shifts to policy decisions and geopolitical uncertainties—have redefined how investors view alternative assets. In this analysis, we consider additional factors such as extreme currency volatility and a refined focus on private equity and debt as key segments of AIFs.


1. A New Macro Backdrop: Shifting Dynamics

  • Interest Rate Movements & Liquidity Adjustments

On April 9th, the RBI's MPC lowered the repo rate to 6% to boost growth as inflation moderated, reducing borrowing costs and encouraging spending. While this easing increases liquidity, it also raises asset bubble concerns, strengthening the case for inflation-protected and non-correlated investments.

  • Currency Volatility

Over the past few weeks, currency markets have experienced extreme volatility. Just 15 days ago, the US Dollar was on a sharp upward trajectory, but following President Trump’s tariff announcement, the USD has begun a steady decline. Meanwhile, the Indian Rupee experienced a sliding phase over the last few weeks, but has largely recovered since the end of March, signaling renewed investor confidence and a stabilizing domestic market. For example, the USD/INR exchange rate saw fluctuations between 85 to 87.50 in the past quarter, highlighting the volatility.

  • USA Tariffs & Geopolitical Uncertainty

The new tariffs announced by President Trump have introduced significant headwinds into the global economy. These tariffs have increased input costs for manufacturing and service sectors, and have led to greater market volatility that is affecting profit margins and supply chain dynamics. According to the IMF, global trade growth is projected to slow in 2025, largely due to these trade tensions. In response, India's External Affairs Ministry has stated that these tariffs will be treated as an opportunity to re-assess trade strategies and enhance regional cooperation. Investors are now rethinking their exposure to traditional equities and fixed-income instruments, which reinforces the appeal of alternative investments that offer non-correlated performance.

  • Technological & Geopolitical Transformations

In addition to fiscal and monetary shifts, technological advancements and ongoing geopolitical tensions continue to reshape market fundamentals. The acceleration of digital transformation, coupled with heightened regulatory oversight, is driving a structural shift in capital allocation. For instance, India’s digital economy is projected to surpass $1 trillion by 2028, with significant investments in AI and deep- tech. [invalid URL removed] As a result, investors are increasingly attracted to sectors such as AI-driven ventures and deep-tech infrastructure, which are less sensitive to traditional market cycles.



2. Key Alternative Investment Themes and Their Impacts

  • Non-Market Correlation & Diversification

Alternative assets remain critical in providing diversification, particularly in turbulent times. They offer low correlation with public markets and help stabilize portfolios through contractual cash flows and long- term value appreciation. This non-market correlation is now more valuable than ever given the present economic uncertainties and heightened volatility in traditional asset classes. Studies indicate that incorporating alternatives like private equity and real estate can reduce portfolio volatility by 15-20%.

  • Inflation Hedging & Real Return Potential

Global inflationary pressures are intensifying, making the search for assets that can preserve purchasing power a top priority. Infrastructure, commodities, and real estate are proving to be effective inflation hedges with their intrinsic ability to appreciate in value. India’s wholesale price index (WPI) has shown fluctuating trends, with recent readings indicating a need for inflation-hedging strategies. These asset classes provide both yield and capital appreciation, thereby offering a dual benefit of income generation and protection against inflation.

  • Private Equity and Debt: The Evolving AIF Landscape

In today’s environment, the focus within Alternative Investment Funds (AIFs) has sharpened on private equity and debt. Private equity offers exposure to high-growth companies and innovative startups, while private debt provides structured financing solutions that are increasingly critical as traditional lending channels tighten. Both segments present attractive risk-reward profiles and have become central to the strategies of institutional investors, HNIs, and family offices. Furthermore, SEBI’s March 2025 decision to permit AIFs to invest in Listed Debt below Grade A has expanded the universe of eligible assets, offering a more diversified yield landscape and creating additional opportunities for alpha generation compared to earlier regimes. The Indian AIF industry has seen a significant growth, with assets under management (AUM) reaching over $100 billion, with a notable increase in category II and III AIFs.

  • India's Multilateral Foreign Policy: A Global Balancing Act

India’s evolving multilateral foreign policy has positioned the country favorably on the global stage. By engaging in strategic partnerships and maintaining a balanced approach, India is able to assert its economic and geopolitical interests without aligning adversarially against any nation. This diplomatic agility has garnered praise from countries such as South Korea, with some policymakers emphasizing the need to analyze and learn from India’s balanced approach. Such a strategy not only strengthens investor confidence in the nation’s macro stability but also enhances its attractiveness as a destination for diversified alternative investments. It underscores a commitment to collaboration and mutual growth, paving the way for more resilient and globally integrated investment frameworks.

  • Real Estate’s Dual Role

Specialized real estate segments remain a cornerstone of alternative investment portfolios. Institutional capital is flowing into high-demand areas such as luxury residential, data centres, and senior care facilities. For example, The India Data Center Market size is estimated at 3.31 thousand MW in 2025, and is expected to reach 6.69 thousand MW by 2030, growing at a CAGR of 15.11%. These sectors not only provide stable income streams but also present significant upside potential in a rapidly evolving market environment.



3. Risks Associated with Market-Linked Investments

In an environment where market-linked investments continue to evolve, investors must be cognizant of the inherent risks. Fluctuating equity valuations and interest rate changes are contributing to heightened market volatility. Notably, on April 7th and 8th, 2025, global capital and stock markets experienced a significant downturn, with major indices like the S&P 500 falling by 3.5%, the FTSE 100 dropping by 2.8%, India's Nifty 50 declining by 3.0%, Japan's Nikkei 225 falling by 3.2%, Beijing's CSI 300 dropping by 2.5%, Hong Kong's Hang Seng falling by 3.8% and Singapore's Straits Times Index falling by 2.9%, directly attributed to the increased uncertainty surrounding the newly imposed USA tariffs. Currency fluctuations add another layer of uncertainty, especially when geopolitical events or policy shifts—such as tariff announcements—disrupt traditional trading patterns. Additionally, market-linked investments are subject to external economic shocks and sentiment shifts that can quickly alter investor behavior. It is essential for investors to incorporate robust risk management strategies and maintain a diversified exposure to mitigate these risks effectively.



4. The Outlook for FY2026 in India

As India gears up for FY2026, the evolving economic conditions present a mixed yet promising outlook. Despite the headwinds from the recent US tariff announcements and global currency volatility, India’s robust fiscal policies and structural reforms are offering some insulation against external shocks. The recovery of the INR since the end of March is a positive signal for market stability and investor confidence. Investor appetite is expected to grow as deeper market liquidity and evolving risk preferences drive allocations towards alternative assets, particularly those offering inflation protection and stable cash flows. In addition, technology-driven sectors and real asset classes are anticipated to garner increased focus, reinforcing India’s growth story against the backdrop of global economic rebalancing.



5. ARCA Alternatives: Strategic Positioning for Future Growth

In this dynamic and uncertain environment, ARCA Alternatives is uniquely positioned to navigate the evolving investment landscape. Our expertise spans across private equity, debt, and real estate, providing tailored, risk-adjusted solutions that safeguard and enhance investor portfolios. As global macroeconomic conditions evolve and challenges such as currency volatility and geopolitical tensions persist, ARCA Alternatives remains committed to unlocking long-term value for our clients. We help our investors to not only navigate uncertainty but also seize growth opportunities that the upcoming FY2026 promises.



Conclusion:

The rapid changes in the economic and financial landscape—from fluctuating currencies and global tariff shocks to technological transformation and evolving risk appetites—underscore the importance of agile, diversified investment strategies. By embracing alternative assets and leveraging our deep expertise in private equity, debt, and real estate, ARCA Alternatives is at the forefront of helping investors navigate these challenges and capitalize on emerging opportunities. Our strategic approach is designed to build resilience and drive growth in an ever-changing market.


- Sagar Nagaraj,

ARCA Investment Team


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References:

  1. https://economictimes.indiatimes.com/news/economy/policy/rbi-mpc-2025-repo-rate- change-announcement-key-highlights-and-economic- impact/articleshow/120114106.cms?from=mdr

  2. https://www.mordorintelligence.com/industry-reports/india-data-center-market

  3. https://www.ibef.org/news/alternative-investment-funds-aif-commitments-top-rs-13-00-

    000-crore-us-149-25-billion-as-high-net-worth-individuals-hnis-prefer-diversification

  4. https://www.livemint.com/technology/indias-digital-economy-set-to-exceed-1-trillion-

    by-2028-suggests-report-11727890577939.html

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