It's a bit weird, I have activated the virtual environment python still points to the global installation.

$ which python
/usr/bin/python$ source ~/virtualenv/bin/activate
(virtualenv)$ which python
/usr/bin/python 

What am I missing?

Thanks to pointers from @Barun Sharma, I could fix this.

Initially I had created a virtual environment in the directory ~/projectname. Later I decided to move it to under ~/virtualenv. This would result in a stale path ~/projectname in $PATH variable. Updating VIRTUAL_ENV to the latest path in /bin/activate solved the problem.