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Money pouring into equity holdings

Value of sovereign wealth fund and pension fund holdings doubles in a year, with growth & returns on investment making scrips attractive

Sneha Padiyath & Sachin P Mampatta  |  Mumbai 

The value of equity assets held by sovereign wealth funds and pension funds went up in June, the fifth month of such a rise. It is now more than twice the figure in June 2013.

The value of their holdings is rising faster than the rise in the market, suggesting incremental inflows are driving this, rather than an appreciation in existing investments.

Assets are up 121.2 per cent during the past one year, according to depository data. They held Rs 2.78 lakh crore at the end of June, compared to Rs 1.26 lakh crore at the end of June 2013. The BSE's Sensex, an index whose movements are held to be representative of how the market is doing, was up 31 per cent in the same period, rising from 19,395.81 to 25,413.78.

Assets are up 29.6 per cent since end-January, compared to a 22 per cent Sensex rise in the period.

A mix of strong India sentiment, in anticipation of a decisive election mandate in May, as well as a growing need among such funds for a higher yield to meet long-term obligations, has resulted in their increased participation in Indian equities, say experts.

"The demand for Indian equities among sovereign funds has definitely been on the rise, even much before the elections. Foreign investors had been more confident than domestic investors about the prospects of a decisive mandate in the elections," said Ankit Swaika, head of investment advisory and research, Religare Macquarie Wealth Management.

"With global growth in developed countries being in single digits and fast-greying demographics in continental Europe, as well as Japan and also to an extent in China, many of these economies will need to find avenues to put their large foreign exchange reserves to productive use, with pension liabilities ballooning. Hence, they will be on the lookout for those and economies where returns are significantly higher and India qualifies most eminently on that score," said Ajay Bodke, head of investment strategy & advisory at Prabhudas Lilladher.

They now account for 16.3 per cent of the total Rs 17.15 lakh crore of foreign portfolio investors' equity assets. Such funds are generally regarded as a stable source of capital flows, on account of their long-term investment horizon. Foreign portfolio investors have been net buyers by Rs 59,794 crore in 2014, of which Rs 59,080 crore came in the five months under consideration.

"Sovereign wealth funds and pension funds are among the largest players globally. They have been participating in all and have become substantial players in the Indian market as well. They have not been over-allocating to India but their participation has been going up for the past few months," said Saurabh Mukherjee, chief executive, institutional equities, Ambit Capital.

The higher inflows are resulting in many large companies hitting a ceiling in terms of foreign flows. Higher demand for blue-chip companies are running up against regulations limiting how much foreign ownership certain companies can have.

"… The only limiting factor for these investors has been the issue of foreign institutional investor limits being hit in many of the large-cap stocks. This has been seen particularly in the banking space, in stocks like HDFC Bank where the limit has already been hit, ICICI Bank and Axis Bank," said Ankit Swaika, head of investment advisory and research, Religare Macquarie Wealth Management.

It is expected that a recent regulatory move requiring the government to dilute its stake in public sector companies to 75 per cent will create more investment opportunities for foreign investors. Increased fund raising activities are also providing opportunities for foreign investors to deploy funds, added Swaika. Indian companies have raised Rs 28,532 crore through the equity route so far this year, according to data from Prime Database.

First Published: Mon, July 14 2014. 00:10 IST