Sovereign Wealth & Pension Funds

Indian Equities Become a Hit with Global Funds Investors Such as Sovereign Wealth & Pension Funds

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Sovereign wealth and Pension funds raise the share of long term funds in FII to 16% from 9%  

It seems India would be able to reverse the effects it has faced due to its slow economic conditions. As Sovereign wealth funds have become the top investors among global funds to invest in Indian equities. This shows that investors are regaining faith in the long-term prospects of the Indian economy.

According to the data from SEBI, the share of long-term funds such as sovereign wealth funds and pension funds in total foreign institutional investor, or FII, inflows into Indian equities increased to 16% in December 2013 from 9% in May 2013 while in absolute terms, it incremented by $14 billion.

The combined share of sovereign wealth and pension funds is now $35 billion while that of FIIs in Indian equities was $216 billion at the end of December. The share of these long-term investors, which are going to stay invested in select stocks, in total FII inflows has averaged 9-10% in the last two years. These long-term funds have gradually raised their familiarity to equities, especially in the past six months, which should delight policy-makers as equities are considered to be far more enduring flows. Pension and sovereign wealth funds are investing more in Indian stocks 

Dalal Street all Cheers for the Change

Pension and sovereign wealth funds are transferring shares from countries such as China, South Korea, Russia and Brazil because of reviving macroeconomic conditions. The rising allocation of funds such as sovereign wealth and pension funds is good news for Indian equity markets. They usually invest for a long term which would bring a lot of stability to Indian markets. 

The investors aren't relying on the results of April-May polls. As the latter this time are going to be quite unpredictable, long-term investors are therefore considering India's growth as the deciding factor. Global emerging market, or GEM, has experienced an outflow of funds amounting to $30 billion in the past six months while India saw an inflow of $10 billion in the same period. Such increased inflow of funds explain the improvement in India's macro environment compared with the year-ago levels. 

The fiscal and current account deficits have become better. This is happening when various other major emerging markets such as China, Brazil, Russia and South Africa are having a hard time handling their issues and comparatively India is doing a lot better. FIIs invested $20 billion and $24 billion into Indian equities in 2012 and 2013, respectively. So far, they have invested a total of $3.2 billion. 

Sovereign wealth funds such as Abu Dhabi Investment Authority, Kuwait Investment Authority and that of Norway have been the leading investors in Indian markets. Abu Dhabi Investment Authority holds 2.47% in InfosysBSE 1.12 % and 1% in Larsen & Toubro while Kuwait Investment Authority holds 1.62% in Sadbhav Engineering BSE -1.94 %. In February, Bank Norges, which manages Norway's sovereign fund, raised its share in Indian Hotels to 5%.