For sovereign funds, India is the place to be

With volatility plaguing global commodity markets, sovereign wealth funds (SWFs) have turned to India to park their funds. The value of Indian stocks held by these investors is up 32 per cent in the first eight months of 2016, at ₹2.31 lakh crore. In 2015, too, SWFs were net buyers of Indian equity, with the value of their holding rising 14 per cent.

Some of the world’s largest funds, such as Norway’s Government Pension Fund Global, the Government of Singapore Investment Corporation (GIC) and the Abu Dhabi Investment Authority (ADIA), hold a chunk of listed Indian stocks.

Around 10 per cent of capital market assets held by foreign portfolio investors (FPIs) come from SWFs. They are the third-largest category of foreign investors currently, after mutual funds, which account for 45 per cent and broad-based funds, which corner 19 per cent of FPI funds.

It was the annual report of the Sovereign Investment Lab, the research partner for the International Forum of SWFs, that picked India to be the global bright spot.

“With 36 completed deals, India wins the prize for the most attractive target country of 2015 by number of operations … the broad diversification of investments across sectors is a definite sign of economic vitality,” the report states.

A young population, a slight increase in income inequality — a promising sign of a rising middle class — and a business-friendly new leader are the attractions in India, the report adds.

These funds have managed to weather the crash in oil and commodity prices over 2015 and 2016 relatively well, without too much of a reduction in their overall assets.

Globally, assets managed by SWFs towards the end of March 2016 were valued at $6.5 trillion, up $200 billion over the previous year. While 45 per cent of the funds have recorded an increase in assets under management, 36 per cent have registered a decrease, with 19 per cent logging no change.

The recent volatility in commodities has made the funds more alive to the need for diversification: in 2015, the retail and healthcare industry attracted $4.6 billion and $2.6 billion of SWF money, respectively.

The active SWFs in India are taking an interest in the equity market, and are willing to churn their holdings according to the outlook for various sectors.

A BusinessLine analysis reveals that the SWFs are clearly not enamoured of producers of commodities such as oil and gas, ferrous and non-ferrous metals.

It’s not hard to see why these stocks are absent from the portfolios of all three large SWFs, given that their economies are over-exposed to these commodities.

Meanwhile, healthcare seems a preferred sector. ADIA has bought pharma stocks such as Lupin and Aurobindo Pharma, and increased its holding in Divis Labs over the last two years. Singapore’s SWF has bought Lupin, Sun Pharma and Strides Shasun and has raised its stake in Dr Reddy’s Labs. Norway’s Government Pension Fund Global holds Cipla, Jubilant Life Sciences and Cadilla Healthcare.

With the auto sector performing well on the bourses, many of these funds have bet on stocks such as Tata Motors, Ashok Leyland and Maruti Suzuki. Logistics stocks such as VRL Logistics, Navkar Corporation and Container Corporation have also found favour with many SWFs.

Indian IT stocks have, however, not caught their fancy. With the exception of Infosys, no other IT stock is in their portfolios.

While ADIA and GIC have a large-cap tilt, Norway’s SWF appears more adventurous, with many small-cap stocks such as Kajaria Ceramics, Greenply Industries, Ahluwalia Contracts and Atul in its portfolio.

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