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India has overtaken China as the most attractive emerging market for investment, according to 85 sovereign wealth funds and 57 central banks representing US$21 trillion in assets.
India is viewed increasingly favorably due to its improved trade and political stability, favorable demographics, regulatory initiatives, and friendly environment for sovereign investors, according to a report by global investment management firm Invesco.
The report, titled the Invesco Global Sovereign Asset Management Study, included the views of 142 chief investment officers and heads of asset classes along with chief portfolio strategists from 85 sovereign wealth funds and 57 central banks.
Amidst still rising inflation and real interest rates, investors are resetting their investment portfolios.
She said that sovereign wealth funds favor fixed income and private debt, while emerging markets (EMs) with strong demographics, political stability and proactive regulation, particularly India, have emerged as prime investment destinations.
“Among emerging markets, India has piqued the interest of sovereign investors, overtaking China,” she said.
She said India embodies the attributes that sovereign investors seek. “India has now overtaken China as the most attractive emerging market for EM debt investment.” A sovereign development fund based in the Middle East noted, “We don’t have enough dealings with India or China. However, India is a better story now in terms of trade and political stability. The demographics are growing fast, and they also have interesting businesses, good regulatory initiatives, And a very friendly environment for sovereign investors.”
India is among a number of countries, including Mexico and Brazil, that are benefiting from increased investment by foreign companies aimed at meeting domestic and international demand through “friend support” and “near support”.
This was seen as helping to finance the current account deficit as well as supporting local currencies and assets, including debt.
She said that in terms of attractive emerging market markets for increased exposure, India and South Korea remain the most attractive destinations.
A central bank in the West has made it clear that it is looking to increase its exposure to emerging market debt and is particularly focused on debt targeting real estate and infrastructure as well as other diversified industries.
According to the report, more than 85 percent of the 85 sovereign wealth funds and 57 central banks indicated that inflation will be higher in the next decade.
In such a situation, gold and emerging market bonds are seen as good bets. This shift may have resulted from the West freezing nearly half of Russia’s $640 billion in gold and foreign exchange reserves in response to the invasion of Ukraine.
The survey showed that a “significant share” of central banks were worried about the precedent being set. Nearly 60 percent of the survey respondents said they made gold more attractive, while 68 percent kept their reserves at home compared to 50 percent in 2020.
India’s manufacturing PMI did not contract last year, but contrary to expectations, FDI inflows fell by 22 percent to US$46.03 billion in FY23 amid rising inflation and recessionary trends in advanced economies.
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