India replaces China as top FDI hub led by GCC sovereign wealth funds

By Rahul Vaimal, Associate Editor
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India has replaced China in 2020 as the most sought-after investment destination for private sector global sovereign wealth funds, thanks to a dramatic rise in FDI (Foreign Direct Investment) flow from Gulf-based Sovereign Wealth Funds (SWF).

According to data from the US-based Global SWF, which monitors over 400 State-Owned Investors (SOI), including SWFs and pension funds, SWFs from around the world deployed capital worth a record $14.8 billion in India in 2020, which is almost three times more than what they invested in China ($4.5 billion).

In its latest report, Global SWF said that India overtook its rival amid efforts to ramp up FDI in infrastructure, while China was brought down in a continuous trade war with the US that cooled investor interest, particularly in tech sector which saw SOI investment in the sector slump by 77 percent in 2019.

“Although China demonstrated resilience in the face of the pandemic and bounced back from recession, it continued to be eclipsed by India in 2020 despite the South Asian rival’s deep economic woes. During the first 11 months of 2020, India has notched up around 46 per cent growth in SWF investment compared to the whole of 2019 to around $15 billion, while allocations to China are down by 30 per cent to $4.5 billion,” the report said.

GCC sovereign wealth funds

More than $7.5 billion of this is accounted for by GCC based SWFs, including the Abu Dhabi Investment Authority (ADIA) and Mubadala, the Saudi Public Investment Fund (PIF), the Investment Corporation of Dubai, Qatar’s QIA and Kuwait’s KIA.

Such SOIs were attracted by the $160 billion Reliance conglomerate, owned by top Asian billionaire Mukesh Ambani, which offered stakes in its telecommunications and retail verticals including the Jio mobile and data provider, Reliance Retail Ventures Ltd. (RRVL) and its digital fiber network.

Despite a “technical recession”, India which is Asia’s third largest economy also reported a 15 percent jump in overall FDI flow to $39.9 billion year-on-year in the second and third quarters, partly due to sweeping “global anti-China sentiments as investors strategized to tap alternative supply chains.”

Widening gap

Although the gap between foreign capital deployed in the two countries widened this year the trend began in 2018, when India attracted more FDI than its neighbor for the first time in two decades, with 253 inbound deals valued at $ 39,515 compared to 397 inbound deals valued at $ 33,02 billion in China. According to data, India’s appeal was enhanced by stable fundamentals, a bankruptcy code and fresh opportunities in new sectors.

In terms of private market strategy, sovereign investment in India shifted dramatically from roads and renewables to retail and communications in 2020. Toll roads have been a favored target of SOIs in recent years in the rapidly developing Indian market, encouraged by tax breaks, privatization and co-investment opportunities with the government.