Oslo: Norway’s sovereign wealth fund, the world’s largest, will increase its holdings “significantly" in India as Prime Minister Narendra Modi opens Asia’s third-largest economy to investments and competition.

The fund on Wednesday revealed that it raised its holdings of Indian bonds and stocks to 0.9% of its fixed-income and equities portfolios, as part of a broader plan to increase its presence in emerging markets and generate bigger returns.

“India is one of those markets where you should expect that we will continue to increase our investments over time, significantly," Yngve Slyngstad, chief executive officer (CEO) of the Oslo-based fund, said in an interview after a press conference on Wednesday. “Relative to the size of the economy our investments are smaller than you would expect."

Foreign investors are increasing investments in India at a faster pace than in any of the seven other Asian markets tracked by Bloomberg. The Sensex has jumped 28% this year, rallying after Modi’s Bharatiya Janata Party (BJP) in May won elections by the biggest margin in three decades on promises to create more jobs and lift growth. Since taking power, Modi has shifted toward more market-based energy pricing, allowed more foreign investment in the defence industry and pushed to revive the manufacturing sector.

“The changes that we have seen have given us more confidence that we will have good investment potential in the coming years," Slyngstad said. “We will continue to increase our investments there, both on the fixed-income side and in regards to our company investments."

Indian Growth

At the same time the fund is being blocked from investing more in China and is now again seeking to increase the allocation it has been allotted, according to Slyngstad.

India’s $1.9 trillion economy will grow 5.5% in the fiscal year through March 2015, the Reserve Bank of India (RBI) predicts. While that would exceed the previous period’s 4.7%, it’s still slower than the average 8.7% pace during the period in 2006 to 2010. Standard & Poor’s upgraded its outlook for India’s credit rating last month, citing reduced price pressures and a government plan to narrow the budget deficit to a seven-year low of 4.1% of gross domestic product (GDP).

The Government Pension Fund Global, the wealth fund’s official name, rose 0.1% in the third quarter, its smallest return since mid-2013, it said on Wednesday.

Bond Shifts

Slyngstad warned it will become more difficult for the fund to generate high returns after interest rates plunged amid sluggish global economic growth. The fund lost 4.3% last quarter on its stock holdings in Europe, which represented 43.6% of its equity portfolio. Its North American stocks gained 3.4%, while equity holdings in Asia and Oceania rose 2.3%.

The biggest government bond increases in the quarter were in Japanese, Indian and Austrian bonds, while the biggest decreases were in government bonds issued by the US, France and Germany, the fund said.

Norway generates money for the fund from taxes on oil and gas, ownership of petroleum fields and dividends from its 67% stake in Statoil ASA, the country’s largest energy company. Bloomberg

Christian Wienberg in Copenhagen, Rajhkumar K Shaaw in Mumbai and Sunil Jagtiani in New Delhi also contributed to this story.

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