By Sankey Prasad
The stable growth of a demand-driven Indian economy has attracted sovereign wealth funds and pension funds to invest in the country’s infrastructure and growing sectors. A recent news flash suggested that Goldman Sachs is set to sell its remaining 14 percent stake in ReNew Energy Global — the Nasdaq-listed parent of ReNew Power — to the Canada Pension Plan Investment Board (CPPIB) for about US$268 million. Earlier in April 2022, BlackRock Real Assets, a unit of BlackRock Inc. and Abu Dhabi-based Mubadala Investment Company, agreed to invest US$525.8 million in Tata Power Renewable Energy Limited, Tata Power Company Limited’s renewable unit.
In the housing sector, the wholly-owned subsidiary of Abu Dhabi Investment Authority (ADIA) took a 20 percent stake in IIFL Home Finance in June 2022 for about US$22 billion. Other notable deals in the same year were Qatar Investment Authority’s investment in Bodhi Tree and Singapore’s Temasek Holdings boosting ownership in Manipal Health Enterprises Private Limited. While the deals may look different, all these investments have one thing in common – sovereign wealth funds and pension funds from around the world are investing in India. India is the second most coveted investment market after the United States for sovereign wealth funds and public pension funds in 2022, said a study by asset manager Invesco. India’s economic power has been on the rise, and sovereign wealth funds operating around the world, have taken note of the trends.
What are SWFs?
Sovereign wealth funds (SWFs) are investment funds owned by governments or their agencies. These funds are usually created to manage a country’s surplus funds, often generated by commodity exports or foreign exchange reserves. India too has a sovereign wealth fund called the National Investment and Infrastructure Fund or NIIF. The Abu Dhabi Investment Authority (ADIA) has invested in a number of sectors in India, including real estate, infrastructure, and healthcare. In 2019, ADIA invested US$500 million in a joint venture with India’s NIIF to invest in infrastructure projects in the country. Hence, these funds invest in a wide range of assets, including stocks, bonds, real estate, and other alternative investments. Their goal is to generate returns that can be used to support a country’s long-term economic development and stability. Another example is the Singaporean sovereign wealth fund, GIC, which has invested in a range of Indian companies, including technology firm Flipkart and the e-commerce platform Zomato. Many seek healthy returns and development across regions.
But what is it about India that is attracting these funds?
The rise of India’s economy
India’s economy has been growing rapidly in recent years. A combination of factors, including a young talented population, infrastructure growth and nationwide implementation of digitalisation has attracted these funds to India. The country’s GDP has been growing within the range of 6.5 percent to 7 percent per year since 2014, making it one of the fastest-growing major economies in the world.
India’s government has been taking steps to encourage economic growth, including implementing structural reforms to improve the business environment, increasing infrastructure spending, and encouraging foreign investment. These efforts have helped attract foreign investors, including sovereign wealth funds, who are looking to capitalize on the country’s growth potential. But there are others factors too.
India has a strong domestic consumption and a growing manufacturing sector. Recent reforms to boost production and manufacturing within the country has also led to a surge in demand. All of this has created opportunities for businesses across a range of sectors, including retail, healthcare, and financial services. It has also helped to create jobs and boost economic growth. Moreover, India is strategically located in South Asia, with access to major shipping lanes and proximity to important markets in Southeast Asia and the Middle East. In recent years, the development of a robust logistics and warehousing infrastructure has added strength to the business expansion of companies. It offers an attractive proposition for businesses looking to expand their operations. On top of this, the country has been welcoming manufacturers set bases in India.
India’s highly skilled workforce, with a large pool of educated and trained professionals, has propelled foreign companies to open offices and drive research and development from here. With growth, however, there is a need to find newer avenues of investments for sovereign funds. This year, investments will likely rise. The current global economic turmoil on account of rising interest rates, the Ukraine-Russia war and the supply chain disruption will only push funds to look at India with hope. Hence, it becomes imperative that the government creates further opportunities for these funds while striking a balance between investment avenues and steering growth.
(Sankey Prasad, CMD, Colliers India. Views expressed are author’s own.)