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Sovereign funds remain positive on India

Even as crude oil prices have fallen sharply, the funds' assets grew 14% to Rs 1.76 lakh cr in 2015-16

Sovereign funds remain positive on India
Samie ModakPurva Chitnis Mumbai
Last Updated : May 02 2016 | 3:44 AM IST
Concerns that falling oil prices would trigger a sell-off by sovereign wealth funds (SWFs) in the domestic market seem to have been unfounded. SWF assets in the equities market have risen 14 per cent to Rs 1.76 lakh crore during 2015-16, despite a nine per cent decline in the Sensex. Overall foreign portfolio investor (FPI) equity assets fell by 6.3 per cent to Rs 18.9 lakh crore during this period, latest data by depository firm NSDL shows.

SWFs, investment vehicles set up by countries with budget surpluses, invest in various liquid asset classes across the globe. Over half of global SWFs are from countries rich in natural resources, particularly oil. The decline in oil prices has sent fiscal calculations of many of these countries for a toss, forcing them to offload or withdraw investments. Brent crude oil prices have fallen sharply from $115 a barrel in June 2014 to $27 a barrel in January this year. Though oil prices have recovered to $45 currently, they are 60 per cent lower than in June 2014.

According to think tank Sovereign Wealth Fund Institute (SWFI), these have offloaded equity assets worth over $200 billion (Rs 13 lakh crore) in 2015. Then what explains their enthusiasm with India?

"It was widely expected that the drop in oil prices would lead to the withdrawal of sovereign wealth funds. But we haven't seen much of that in the Indian market. It may be because of India's attractive prospects relative to other markets, from a long term investor's point of view. Also, not all sovereign funds have a dependency on oil revenues," says Kapil Seth, managing director and head, HSBC Securities India.

Interestingly, the domestic equity assets of sovereign funds, posted month-on-month growth during most of 2015-16, barring January and February, when the markets had come off sharply.

"It is difficult to ascertain the exact impact of oil prices on investment allocations into India, as clients continuously reallocate their total asset pool across markets and assets. We do see clients continuing to increase their India investments," said Aashish Mishra, head, securities and fund services, Citi India.

Most of the FPI investments in the country are routed through Citi and HSBC.

Sectoral players say registration of new FPIs in the Indian market is growing at a healthy clip, creating a lot of optimism. The FPI count in the Indian market more than doubled from 1,444 in March 2015 to 3,992 in March 2016.

"New registrations of SWFs continues to be good.· On a broader level, we continue to see new investors from Europe and Canada," says Seth.

The country-wise breakup of FPI data shows investments from Ireland and Canada have grown at a healthy rate. Meanwhile, investments from Norway, which operates one of the world's largest SWFs, has dipped marginally.

Sovereign funds are now the third-biggest FPIs in the domestic market after foreign mutual funds and broad-based funds. As most investments made by sovereign funds are for a sufficiently long term, their moving up in the FPI pecking order is a healthy sign.

"Over the past year, with greater sovereign investments replacing some of the relatively shorter term investors, the foreign holding of the market has structurally improved," says Seth.

SWFI says withdrawal by sovereign funds from equities may double in 2016 if oil prices stay below $40 a barrel.

It remains to be seen if India will stay unscathed this year too if such an event occurs.

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First Published: May 02 2016 | 12:20 AM IST

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