Why Singapore's GIC is bullish about India

By Lee Kah Whye

Singapore, July 10 : Singapore's GIC is gradually ramping up its investments in India and is set to grow its technology portfolio in the country due its growing importance as an innovation hub.

GIC manages Singapore government's financial assets and has a long impressive track record of consistent profits. Over 20 years up to March 2022, GIC Portfolio's annualised nominal return was 7 per cent, and real (above global inflation) return was 4.2 per cent per year. Many investors pay attention to GIC's strategy to set the direction for their investments.

According to SWFI (Sovereign Wealth Fund Institute), GIC manages almost of USD700 billion worth of assets placing it 6th on the global sovereign wealth fund leader board. Only the Kuwait and Abu Dhabi government investment funds, a couple of Chinese funds and the Norwegian Government Pension Fund outrank it in size.

Established in 1981, GIC has been investing in India since the 1990s and opened an office in Mumbai in 2010.

Over the years, GIC has made investments in India in several sectors including financial services, IT services, real estate, infrastructure, healthcare, and consumer goods. In selecting its investment targets, it favours technology-driven businesses.

Recently it has accelerated its investment activity in India.

In May this year, GIC announced that together with Brookfield India REIT, they will acquire two large commercial assets (totalling 6.5 million square feet) from Brookfield Asset Management's private real estate funds in an equal partnership. The acquisition includes commercial properties in Brookfield's Downtown Powai, Mumbai and Candor TechSpace, Sector 48, Gurugram (G1), for a combined enterprise value of USD1.4 billion. This marks the first-of-its-kind partnership in India between a listed REIT and a global institutional investor.

As of the end of September 2021, filings made to the Bombay Stock Exchange (BSE) revealed that GIC raised its holding in the Indian public markets to USD 14.8 billion.

In 2021, the Singapore sovereign wealth fund bought five new stocks and increased the weight in 13 companies, including Tata Steel, Bharti Airtel and Reliance Industries. GIC increased its Indian public holdings five-fold in five years to become the largest state-owned Investor in the BSE.

In November 2020, GIC said that it will establish an India dedicated public market fund. The fund is the first dedicated pool of capital for domestic equities set up by a large global financial institution. It was reported that GIC plans to allocate USD3 billion to the fund. It is expected that the fund will help global funds deploy more money into mid-cap equities.

Since 2017 when GIC formed its Tech Investment Group (TIG), which is incorporated into its private equity division, private equity under its management has seen strong growth. As of end-March 2022, private equity made up 17 per cent of the fund's portfolio.

In an interview with Singapore's Straits Times, Choo Yong Cheen, GIC's chief investment officer for private equity said last week that India has a growing population with increasing discretionary income and pervasive digitalisation trends. He added that this spurs the birth of news players and innovation, while keeping incumbents on their toes, in turn driving efficiency in the system.

As India digitalises rapidly, GIC sees positive trends such as progress in payments and digital lending.

In April 2021, GIC was the lead investor in Indian fintech payments firm Razorpay in a funding round which took the startup's valuation to USD3 billion. The other venture firms that participated in that round which reportedly raised USD160 million were Sequoia Capital, Ribbit Capital and Matrix Partners.

As India eased its foreign investment rules and as overseas investors begin to see its long-term growth potential, the country is turning into an important destination for global institutional investors like GIC. Foreign direct investment (FDI) flows and the role of private investment have risen as more sectors open up and restructuring efforts continue.

Further, the domestic stock market has performed strongly over the last 25 years with rupee returns of 13.5 per cent CAGR (compound annual growth rate) and US dollar returns of 10.1 per cent CAGR.

Since the beginning of this year, India's equity markets have been booming and have reached record highs. India's benchmark Sensex index, which tracks 30 large companies, has climbed 6.7 per cent since the beginning of the year whereas the Nifty 50 index has gained 6.2 per cent. The Nifty 50 index has delivered positive returns for seven consecutive years (2016-2022), with the last instance of negative returns occurring in 2015.

Mark Matthews, Singapore-based analyst from Bank Julius Baer & Co, expressed regret for not being optimistic about India in the past. However, he has now become bullish on the Indian markets. In an interview with CNBC earlier this month, Matthews points out three key reasons for his newfound optimism.

Firstly, he highlights the Indian government's establishment of a strong economic foundation, which recent developments have built upon. Secondly, the corporate sector has successfully reduced its debt while the non-performing assets of public sector banks have been effectively addressed, contributing to a healthier and more resilient economic environment.

Thirdly, with China losing its status as the preferred market in Asia, India has been attracting capital inflows as investors shift away from the middle kingdom.

"I wasn't always a bull on India and I regret that. However, I am now bullish on India. I think the Indian market can go higher."