CPPIB sees India as key market for APAC growth
The Canadian Pension Plan Investment Board (CPPIB) has grown quite significantly over the past decade, across asset classes and sizes, both in Asia and globally.
The largest pension in Canada, with $427 billion in assets under management, CPPIB has increased its allocation of assets in Asia Pacific (APAC) to around 26% over the past decade, or to approximately $106 billion in the region.
CPPIB
In Asia, the fund’s broader investment thesis has been focusing on digitalization and consumption growth, which remains the case despite some macro challenges, according to Agus Tandiono, head of Asia Pacific and active equities in Asia at CPPIB.
“India, particularly India tech, is a standout in terms of long-term opportunities,” Tandiono told AsianInvestor.
“India has a young population, many of them growing into the middle class. Internet and mobile penetration have been growing significantly, and CPPIB backs companies with innovative business models that build on that new infrastructure,” he said.
“We also see opportunities in the energy transition space. These include renewable energy providers as well as electric vehicle batteries and energy storage systems,” said Tandiono.
CPPIB has been a bullish investor in India in the last ten years and has made investments across asset classes, including in real estate, infrastructure, public and private equities, funds and co-investments, and credit.
GROWTH TRENDS
The evolution of India’s digitalisation and consumption growth have been capturing the attention of many large institutional investors for the opportunities they present, according to Huzaifa Husain, head of India Equities at PineBridge Investments.
Pinebridge Investments
“India’s digital public infrastructure is unique, with significant implications for the country’s productivity. With over one billion Aadhaar authentications and nine billion payment transactions every month, it is increasingly clear how this infrastructure is being leveraged to transform the economy,” Husain told AsianInvestor.
Aadhaar is a 12-digit individual identification number which serves as proof of identity and proof of address for residents of India.
Husain also agrees with CPPIB’s Tandiono, and said that there are plenty of opportunities to transform India’s energy space, with the energy transition underway in the region at multiple levels.
“Electricity generation capacity additions are mostly concentrated in the renewable space. Significant tax subsidies are also available on electric vehicles. Meanwhile, pumped storage plans for storing electricity are likewise taking off, alongside increasing regulatory pressure to boost energy efficiency,” said Husain.
CHALLENGES AHEAD
Although the space is booming, the Indian tech sector does present some challenges for the private sector.
“While, globally, platforms for payments, ecommerce, and identity verification are gatekeepers of the digital world, enjoying high valuations, in India these platforms are mostly in the public space and virtually free to use,” said Husain.
“Any company which tries to compete head on with this ‘deplatforming’ trend will struggle, though there are opportunities for companies to use this infrastructure to create innovative services.”
The India IT story is structural with the industry having grown at a Compound Annual Growth Rate (CAGR) of 10% over the last 10 years, according to Sanjay Chawla, CIO of Equity at Baroda BNP Paribas AMC.
Baroda
Chawla remains mindful of some potential challenges that could hinder the sector— such as a slowdown in the global economy or a recession in the US, which he believes could impact the tech spend budgets of enterprise clients of Indian IT companies. Additionally, adverse geopolitical events such as the war in Ukraine could further impact supply chain and the demand for services.
“Technological innovations do provide long term opportunity, but we expect an impact on demand trends in the near term,” Chawla told AsianInvestor.
“The evolution of generative AI and its impact on the business process services workforce needs to be watched as well, as companies will have to invest in retraining their workforce on upgrading their skillsets,” he said.
Over the past decade, India tech has proven its ability to transform itself from mere body shopping to value-add service to consultancy, he said.
“We expect the Indian IT industry to metamorphosise itself for generative AI. It not only has the talent, but also the mindset, to adapt,” said Chawla.
ROOM TO GROW
The Indian market has been the global tech service centre for decades. However, in the tech hardware and manufacturing space, India is still behind China and other countries in the region, according to Minyue Liu, investment specialist of Asian and global EM equities at BNP Paribas Asset Management.
BNPAM
“Over the last few years, under the ‘China + N’ trend, India has benefited from the supply chain diversification from some of the leading tech brands. Although it will take some time for India to grow its tech manufacturing ecosystem, we expect India to benefit from it in the mid- to long-term,” Liu told AsianInvestor.
Liu said that her team is neutral on India at this point.
“We are invested in names that leveraged India’s longer term growth and are comfortable with the growth outlook at this point to maintain those holdings. As the [Indian general] election is going to take place next year, cash supply and liquidity are expected to increase in India,” she said.