According to a report by investment management firm Invesco, India has surpassed China as the most attractive emerging market for investment, as per the views of 85 sovereign wealth funds and 57 central banks managing a total of USD 21 trillion in assets.
India is gaining positive recognition for its improved business and political stability, favorable demographics, regulatory initiatives, and investor-friendly environment, as highlighted in the ‘Invesco Global Sovereign Asset Management Study’. The study included responses from 142 chief investment officers, heads of asset classes, and senior portfolio strategists representing sovereign wealth funds and central banks.
In light of persistent high inflation and real interest rates, investors are adjusting their portfolios. Sovereign wealth funds are favoring fixed income and private debt investments, with Emerging Markets (EMs) exhibiting solid demographics, political stability, and proactive regulation, particularly India, emerging as prime investment destinations.
The report states that India has captured the interest of sovereign investors among emerging markets, surpassing China. It exemplifies the qualities sought by sovereign investors and has become the most attractive emerging market for investing in emerging market debt. Sovereign investors acknowledge India’s business and political stability, rapid demographic growth, presence of interesting companies, favorable regulatory initiatives, and a conducive environment for sovereign investment.
India, along with countries like Mexico and Brazil, is benefitting from increased foreign corporate investment due to the strategies of ‘friend-shoring’ and ‘near-shoring’, which cater to both domestic and international demand. This has helped fund current account deficits, support currencies, and boost domestic assets, including debt.
The report indicates that India and South Korea continue to be the most attractive destinations for increasing exposure to emerging markets. Some central banks, particularly in the West, are focused on increasing their exposure to emerging market debt, particularly in sectors like real estate, infrastructure, and diversified industries.
The study also highlights that over 85% of the surveyed sovereign wealth funds and central banks anticipate higher inflation in the coming decade. In response, gold and emerging market bonds are being seen as favorable investment options. The freezing of a significant portion of Russia’s gold and forex reserves by the West following the Ukraine invasion has influenced this shift in perception. Concerns over the precedent set by this event have made gold more attractive, and a larger share of central banks are keeping reserves at home.
While India’s Purchasing Managers’ Index (PMI) for manufacturing did not contract in the past year, foreign direct investment (FDI) inflows declined by 22% to USD 46.03 billion in FY23 due to high inflation and recessionary trends in developed economies.
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