Norway fund reduces India allocation, exits 22 listed companies in 2018

Value of the world's largest sovereign wealth fund's equity holdings is down $709 million over the previous year

Norway’s Government Pension Fund Global, the world’s largest sovereign wealth fund, has reduced its overall allocation to India during 2018, a look at its periodic disclosures reveal.

The value of the fund’s equity holdings is down by $709 million over the previous year. Also, the value of its debt holdings has fallen $1.51 billion. The fund registered returns of -4.9 per cent on its equity portfolio in rupee terms during 2018. Returns were down over 10 per cent in the funds’ currency basket. The debt portfolio also saw negative returns in market value, according to its disclosures, with India being among the nations which contributed to the negative returns of the fund.  

“The largest increases in the market value of the fund’s fixed-income investments were in government bonds from Japan, the US and South Africa, while the largest decreases were in government bonds from France, Germany and India,” said the annual report.

It also shows that the total number of companies in which the fund has an equity holding is down from 275 as of 2017-end to 253, as of December 31, 2018. This suggests that the fund has completely exited 22 companies during the course of the year, and that the fall in total India investments is not only because of a decrease in market value.

The fund had raised its India holdings to a high of over $8 billion in 2017. The year saw volatility rise, especially in emerging markets. Equities significantly underperformed other asset classes in its portfolio.

“The fund’s equity investments returned -9.5 per cent, while for unlisted real estate investments it was 7.5 per cent, and for fixed-income investments it was 0.6 per cent. The fund underperformed the benchmark by 0.30 percentage points. The relative return was affected by weak returns in China and challenges in some emerging markets,” said its annual report.

India is expected to do better in the days ahead, according to experts.

Vaibhav Sanghavi, co-chief executive officer, who is part of a hedge fund at Avendus Capital Public Markets Alternate Strategies, said the global environment has become more favourable for risky assets, including from emerging markets like India, after the US Federal Reserve said it would not be raising interest rates as expected. “On a global basis, we are in an environment of lower interest rates and easing liquidity; this is actually helping the flow to risky assets, including the ones in emerging markets. What we do see is basically that (inflows) is largely because of passive funds,” he said. According to him, active funds are likely to pick up pace after the elections.

Meanwhile, a lot of sovereign wealth funds have also been looking to tweak their holdings in favour of companies which are better for the environment, according to Pankaj Pandey, head of research at ICICI Direct, which may also contribute to the churn in Norway’s fund. 

The fund recently said it would be looking to exit oil and gas companies. However, this is not expected to hit India and its peer emerging markets in terms of flows, especially in the light of global liquidity, he said.

“Suddenly, the outlook for emerging markets looks better,” he said.

Foreign portfolio investors have been net buyers in Indian bourses at Rs 40,000 crore since the beginning of the year.