Why public funds are betting on India over China
More than half of public funds selected India as the most attractive emerging market this year, whereas China was not chosen by any of the funds surveyed, a report by Official Monetary and Financial Institutions Forum (OMFIF) finds.
Last year, 23% of public funds selected China as the most attractive emerging market to invest,while 38% of participants in the survey picked India as the top choice.
Among the 28 global funds surveyed, which altogether managed a total of $6.5 trillion in assets, 58% expressed a preference for investing in India thanks to the country’s strong macroeconomic fundamentals and regulatory environment.
Concerns over China’s economic weakness and geopolitical risks were the main deterrents for asset managers, according to the report.
Singapore’s sovereign wealth fund Temasek significantly cut its portfolio exposure to China to 19% this year from 29% in 2020.
Other asset owners like Canadian pension funds stopped direct investment in China as well, as noted in the report.
The positive investment sentiment in India is largely attributed to its improved economy.
abrdn
“India’s economy is more efficient and continues to improve. Higher tax revenues mean the government has been able to spend on upgrading power infrastructure, renewable energy, rail, roads and public transport,” James Thom, senior investment director of Asian equities at abrdn, told AsianInvestor.
“It’s now much easier to do business in India and to move goods and people between states.”
In addition, the possibility of increased tariffs on China by the US may also benefit India.
“We believe the global China + 1 supply chain diversification strategy will accelerate under Trump once the tariffs kick in and that could provide new opportunities for India in the medium term.” Thom said.
The International Monetary Fund projects India’s economy will grow by 6.5% next year, in comparison with 4.5% for China.
“[China]The country’s long-term outlook is still clouded by high debt levels, demographic pressures, and slowing growth.” said Todd McClone, emerging markets portfolio manager at William Blair.
NEW FRONTS IN INDIA
Several sectors in India have emerged as institutional investors’ new favourites.
Infrastructure and energy transition became appealing for one large North America pension fund, researchers at OMFIF told AsianInvestor.
However, they didn’t name the fund. This focus fits with the fund’s broader portfolio, which looks at digitalisation, demographics and de-carbonisation, the researchers said.
William Blair
Government initiatives like Make in India and Production Linked Incentive domestic manufacturing have accelerated capital expenditures, according to McClone, who estimated that capex in India could rise to 20.6 trillion rupees ($242.7 billion) in 2024, up from 6.4 trillion rupees($75.4 billion) in 2014.
“This focus on domestic manufacturing and infrastructure is strengthening India’s self-reliance and enhancing its appeal to global investors.” McClone told AsianInvestor.
Urbanisation is one theme that investors are betting on for India’s market, driven by a growing population and increasing wealth.
“For example, we’ve bought into the real estate sector, which is in the early stages of a longer-term recovery. There are also second-order beneficiaries of the housing boom.” Thom explained.
Healthcare is another promising sector asset managers are looking at. According to the abrdn’s Thom, India’s healthcare system is trying to strike a balance between offering top-notch treatment in upscale urban hospitals while also making sure that the rural population have access to suitable medical facilities.
McClone also added that because consumer spending in India is shifting from staples to experiences and services, sectors such as healthcare, travel, among others, are seeing strong demands.