Sinha prods EPFO to invest more in equities

EPFO may be allowed to invest up to 15% in stocks, up from 5% currently

To address volatility in capital markets, the finance ministry on Thursday pressed pension funds to invest more in the equity market. Jayant Sinha, minister of state for finance, said the Employees’ Provident Fund Organisation (EPFO) could raise investment in stocks up to the threshold of 15 per cent in time.

“We are saying the EPFO, which always had the ability to put up to 15 per cent of its assets in equity markets but never did, has to do at least five per cent. Hopefully, over a period, it will raise it to 15 per cent,” Sinha said at the India Economic Convention here. He said pension funds investing in domestic equities would help lower volatility in equity markets and reduce the cost of capital on the equity side.

“We are trying to ensure we stabilise and smoothen our equity market,” he said.

The EPFO, which started investing in equity markets last month, has been investing in exchange-traded funds. It also invests in state and central government securities.

On economic growth, Sinha said the government was focusing on building productive capacity to sustain 8-10 per cent growth. “We want to build India’s productive capacity so that we can sustain 8-10 per cent non-inflationary GDP (gross domestic product) growth, not only for a few years, but to achieve that growth steadily, through boom and bust cycles,” he said.

India’s GDP posted seven per cent growth in the quarter ended June this year, compared with 7.3 per cent in the March quarter. Recently, the finance ministry lowered its GDP growth projection for this financial year to 7.5-8 per cent from 8.1-8.5 per cent projected by the Economic Survey.