Mumbai Capital

Sovereign wealth funds hike India equity

Sovereign wealth funds (SWFs) are steadily increasing their investments in the Indian equity market and have become the third-largest category of overseas investors with a share of nearly nine per cent in the total foreign investment in the domestic stock market.

Data from National Securities Depository Limited (NSDL), which maintains information on flows from foreign institutional investors (FIIs) in the equity and debt segment, show that SWFs as a category has moved from sixth to third between 2012 and 2015.

The total investment of SWFs in Indian equity is pegged at Rs 1.75 trillion as on December 2015. In 2012, total equity investments of SWFs were only Rs 55,438 crore. Mutual funds and broadbased funds continue to be the two biggest categories of foreign investors in the Indian stock market.

SWFs refer to funds owned by countries. They are created from their respective reserves and used for investment purposes. Such funds typically invest in liquid assets such as stocks, bonds and gold, which can be redeemed easily as well.

Some of the largest SWFs of the world are Norway’s Global Pension Fund, United Arab Emirates’ Abu Dhabi Investment Authority, Singapore’s Government of Singapore Investment Corporation, China’s China Investment Corporation, Saudi Arabia’s SAMA Foreign Holdings and Kuwait’s Kuwait Investment Authority.

Many of the largest SWFs have their origins in the oil-rich Middle East region that, till recently, benefited hugely from its oil exports. Incidentally, NSDL data show that foreign institutional investors from the United Arab Emirates account for the seventh-largest share in total foreign flows in the Indian equity market.

Experts say the Indian equity market is relatively better regulated, with strong surveillance and settlement systems that attract many large global investment entities — sovereign wealth funds just being one of them. They, however, add that going ahead, flows from SWFs may see a dip on account of lower crude prices.

“A lot of countries look at investment opportunities overseas through sovereign wealth funds. The Indian equity market is better placed than many other countries and so such funds have increased their exposure here. But it is likely that going ahead, the trend might change. Most of the sovereign wealth funds come from the oil-rich countries and the recent fall in the crude prices could impact their overseas investments. These are definitely long-term funds but if they need cash, they will sell,” says Harish HV, partner, Grant Thornton India LLP.

Currently, crude is trading at around $30 a barrel, which is significantly lower than the record high of $147 per barrel in July 2008.

In December 2015, the total equity assets held by the UAE-based investors was pegged at Rs 61,026 crore. FIIs from the US account for the largest share in total foreign flows in Indian shares, followed by Mauritius and Singapore.

Meanwhile, mutual funds as a category of foreign investors have always been the largest investors in Indian shares. The data on their holdings are available since 2012 and the share of MFs has always been in excess of 45 per cent of the total FII investments. As on December 31, 2015, the share of MFs was 47.47 per cent.

Incidentally, the share of pension funds – another category with large pools of money – has fallen from 8.05 per cent to 5.98 per cent between December 2014 and 2015.

Apart from mutual funds, broad-based funds and SWFs, some of the other categories of FIIs with a significant investment in Indian equities are pension funds, banks, asset management companies, central banks, investment trusts and insurance/reinsurance companies.

The current sell-off in the equity markets globally could also lead to further selling by foreign investors in India.

According to Bloomberg data, the benchmark Sensex has lost 9.03 per cent in the current calendar year, while FIIs have been net sellers at almost $1,893 million.

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Printable version | Nov 28, 2020 7:27:51 AM |

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