Sovereign funds flock to India with mega moneybags even as FIIs, PEs remain wary

These three funds held a collective 5 trillion, or nearly $60 billion, in Indian stocks as of 31 March, show data compiled by Mint. Of that, about 2.57 trillion (about $30 billion) was invested over the previous three financial years (2021-22 to 2023-24).

Sovereign funds are doubling down on India at a time when global private equity firms, venture capital funds and other growth-stage investors are taking a measured approach to backing domestic companies. 

Their growing interest in Indian markets also comes amid a tapering of foreign institutional investment in the country, although analysts expect FII flows to rebound in the second half of this year. Foreign institutional investors net sold 146.29 crore worth of Indian equities between 1 January and 2 July.

The recent inclusion of Indian sovereign bonds in JPMorgan Chase & Co.’s global debt indexes is also expected to boost the country’s appeal to sovereign funds, say market experts.

Earlier this week, ADIA, the largest sovereign wealth fund in the United Arab Emirates, invested as part of the anchor round in Emcure Pharmaceuticals Ltd’s initial public offering. It is also looking to team up with private equity firm Blackstone to acquire a controlling stake in Haldiram Snacks Food Pvt. Ltd, as Mint reported earlier.

ADIA also pumped in 1,400 crore in growth-stage beauty and personal care startup Purplle last week, and is set to invest 2,001 crore in four residential projects of real estate developer Prestige Group along with Kotak AIF.  

Also read | KKR, GIC & DigitalBridge in fray to acquire Carlyle’ Nxtra stake for $700 million deal

The Singapore government’s GIC is the most aggressive among the three sovereign funds, holding as much as 2.5 trillion in Indian stocks. It has invested in high-profile domestic stocks including HDFC Bank Ltd, Reliance Industries Ltd, ICICI Bank Ltd, Bajaj Finance Ltd, and Larsen & Toubro Ltd. 

The Kuwait Investment Authority, or KIA, and Norway’s Norges Bank hold more than 1.5 lakh crore in Indian stocks, as per PrimeData. This data captures stakes of more than 1% held by these firms. 

India: An emerging opportunity 

Experts say India is a natural ally for several sovereign wealth funds and the only bright spot among emerging markets. 

“India is a high-growth market that these firms are keen to invest in. We have seen that they have increased their deployment rate over the last 3-4 years and this is likely to continue going forward,” said V. Jayasankar, managing director at Kotak Investment Banking. 

Sovereign funds are equally evaluating investment opportunities across public and private deals, he added. 

ADIA is reportedly setting up a $4-5 billion fund to invest in India through Gujarat International Finance Tec-City, or GIFT City, a tax-neutral finance hub in Prime Minister Narendra Modi’s home state of Gujarat.

Also read | ADIA to enter GIFT City, more sovereign funds could follow

Sovereign funds are also steadily increasing their exposure to private companies in India. Last year, ADIA invested as part of a $400-million investment round in eyewear-maker Lenskart. It also invested in renewable energy firm Greenko Group and Reliance Retail Ltd, bringing $21.6 billion into India over the last five years (FY 2019-2023), show data from Venture Intelligence shows. 

GIC pumped in $16.7 billion between 2019 and 2023, with electric-scooter company Ather Energy Pvt. Ltd, Greenko, software firm Atlan, and Sterlite Power among its key investments. 

Mubadala Investment Company, another Abu Dhabi-based sovereign fund, and Qatar Investment Authority, among others, have also been pumping in billions of dollars into the Indian market, data show.  

Also read | Treat us like ADIA, Gulf wealth funds urge India

“Indian founders have learnt the value of investors who have lower cost of capital and a longer holding time horizon as compared to PE/VC investors,” said Kashyap Chanchani, co-founder and managing partner of investment bank The Rainmaker Group. 

“On the other hand, the sovereign funds are seeing more opportunities in the private markets, which favours their risk-reward tradeoff than anytime before.”

A sweet spot for sovereigns

Bankers and industry experts say India is currently in a sweet spot for these deep-pocketed investors, and they see the inflow increasing steadily over the next 5-7 years.  

“India being one of the largest and fastest-growing economies offers a promising growth story and is becoming a natural choice for investment for sovereign wealth funds,” said Neha Agarwal, managing director and head of equity capital markets at JM Financial.

Political stability and many path-breaking reforms in the last decade have helped in attracting a large pool of capital from sovereign wealth funds in the secondary markets, she added.

“In the primary capital markets as well, sovereign wealth funds such as GIC, ADIA and Norges are increasingly participating in more and more IPOs,” said Agarwal, “as they are looking to build reasonable-sized stakes in quality companies with strong growth and profitability early in the process.”

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