The level of interest in India creates its own challenges for private equity specialists such as Donald Peck, a managing partner of Actis, based in New Delhi. Actis currently has $725m under management in India, $250 million of which is invested. The remainder is available to be invested, with $75 million ring-fenced for deals in Pakistan, Bangladesh and Sri Lanka. The Government of Singapore Investment Corporation (GIC) is an investor, having put up $50m. The other major investors are CDC ($100m), HSBC Private Equity ($50m) and Malaysia's EPF ($30m).

Peck says the level of interest in India from international investors in the last year has been remarkable. Japanese investors in particular have been heavy investors. "They are saying that they have to be here because they already have too much invested in China."

Peck agrees with the suggestion that for investors in a place like India, you do have to show a great deal of faith in your managers: "The same goes for the private equity fund manager and who he is dealing with on the other side."

The types of deal in India are quite varied, but the one constant for Actis is that the firm likes to build the deals from scratch, through family business or entrepreneurial relationships. Peck explains that in the current bullish environment "A classic expansion capital deal is much more likely to go to the public markets. We have helped create something approaching a market for buy-outs in this country. There have been five buy-outs in the last 18 months, which is totally new." Each deal has involved Actis and ICICI. Indian companies are now becoming much more confident with the idea of a buy-out. Peck says, "We have seen a corporate shake-up in terms of higher salaries and a whole new dynamic that is driving the corporate restructuring. Indian management has caught onto the idea that with outside help you can create value and reward yourself." In 2004, Actis bought ICI's chemicals business in India along with the management. Peck says, "We have created a lot of value for the management team in a very short space of time."Another trend is overseas acquisitions, particularly in sectors such as autos and pharmaceuticals. Peck observes that the mentality in India is driven by the sustained economic growth and management are looking at the success of Indians overseas and saying to themselves, if we can master Indian bureaucracy, we can probably do it anywhere.