India becomes investment darling for sovereign wealth and pension funds

26 June, 2019


Wealth and state pension funds are expanding their horizons to private markets, to complement an existing focus on stocks and bonds.

Sovereign wealth funds are piling into India, buying stakes in everything from airports to renewable energy, attracted by political stability, a growing middle class and reforms making it more enticing for foreigners to invest. Wealth and state pension funds are expanding their horizons to private markets, to complement an existing focus on stocks and bonds. Almost every jurisdiction in the western world is raising the bar for entry for foreign investors but in India it's the other way round. There's also the attraction of the demographics and a lot of assets that sovereign funds like, such as infrastructure, where there's a huge appetite for foreign funding.

India becomes investment darling for sovereign wealth and pension funds


Indian Prime Minister Narendra Modi's election win last month consolidated his Hindu nationalist party's power base and is expected to stimulate further foreign investment. Foreign institutional investor flows into Indian equities are $11 billion year-to-date, surpassing the total annual tally in each of the four previous years and setting 2019 on course for the highest annual inflows since 2012. India's benchmark BSE Sensex has soared nearly 10% year-to-date.  


THE NEW CHINA  


The attention sovereign funds are giving India is like that they have paid to China. Private equity deal activity in India surged to $19 billion in 2018, the highest level in at least a decade, according to PitchBook data. Sovereign wealth funds and pension funds participated in about two-thirds of that amount. Among recent deal, Singapore's GIC sovereign wealth fund and the Abu Dhabi Investment Authority (ADIA) this month agreed to make a further investment of $495 million in renewable energy firm Greenko Energy Holdings, which has wind, solar and hydro projects. India is widening its use of solar and wind energy to help reduce its reliance on fossil fuels.


India becomes investment darling for sovereign wealth and pension funds


In April, ADIA and India's National Investment & Infrastructure Fund (NIIF) agreed to buy a 49% stake in the airport unit of Indian conglomerate GVK Power & Infrastructure. Another wealth fund is in talks on an infrastructure investment, while Canadian pension funds are seeking similar deals. Canada Pension Plan Investment Board and GIC earlier this year participated in a $145.8 million buyout of Oakridge International School, an operator of schools in India.

ADIA, the world's third-biggest sovereign wealth fund, which has been investing in Indian equities and fixed income for years, has broadened its focus to include asset classes such as infrastructure, real estate and private equities. Its increased interest in India is driven by the country's strong growth potential, positive demographics and continued economic development. More than half of India's 1.3 billion population is aged under 25.The push comes as India and the United Arab Emirates seek to strengthen economic and trade ties.


REFORM PUSH


Regulatory reforms are also bolstering sentiment and drawing in wealth funds. Indian-based fund managers were from this year licensed to manage foreigners' portfolio holdings in the country, where previously such assets had to be managed outside India.

Bankruptcy resolution rules introduced in 2016 helped pave the way for ADIA's $500 million investment earlier this year in a distressed debt fund.
The investment was seen as an effort to launch a secondary market in India's mountain of distressed debt and help ease the burden on local banks.


Omprakash Shahi,
Managing Director,
Nidhi Broking Services Pvt. Ltd.


 

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