The Rs 12,000 crore net foreign equity outflows from India in September have coincided with the flare up of India-Canada diplomatic tensions. Marketmen, however, said there are no visible signs of Canadian outflows, adding that the recent dollar outflows are more a product of hawkish US Fed commentary and resulting rise in dollar and treasury yields. Attractive yields that India offers on its equity and fixed income assets are unmatched, they said.
"We have not seen anything for now to suggest there would be any economic impact. No fund manager has come out with a statement regarding the same. We don’t think, the escalation from here, if any, would be economic in nature," said Deepak Shenoy, Founder at Capital Mind.
To recall, Norway’s Norges Bank Investment Management, the world's largest sovereign fund, had in 2022 announced it would divest its Russian assets following Russia's invasion of Ukraine but its CEO Nicolai Tangen later admitted selling, as instructed by the government, would take time.
India's case is entirely different. Here the Canadian PM Justin Trudeau has accused the Indian government of 'potential' involvement in the murder a Khalistani extremist on Canadian soil without sharing any evidence and that India has rejected that allegation as 'absurd and motivated'. Besides, the Canadian PM recently suggested that he did not intend to "provoke or cause problems".
Independent Market Analyst Ajay Bodke said Nordic countries like Norway, Sweden and Finland are known to be quite opinionated when its comes to ESG mandates and human rights. They were the first ones to sell fossil fuel-based companies; they are the ones to embrace climate change and environment-linked issues, he noted.
"Whichever regimes they find violating human rights, they act. In contrast, one must compare the money that is coming from Canadian FPIs. Of course, Canadian pension funds also invest here. But I would like to use a colloquial: Baap bada na bhaiya, sabse bada rupaiya. In investment world, the biggest thing that matters is return," Bodke said.
Bodke said the whole India-Canada issue has been simmering for last one-and-a-half weeks. "If you did not see any selling from Canadian investors until now, it is unlikely going ahead. India is a FPI darling. Its a part of the scheme China +1; add reforms and the PLI schemes by the government and the fact that India is the fastest growing major economy and it is being wooed by the West allies -- the Canada issue is a storm in teacup.
Even in the case of Canadian pension fund, Bodke asked: "Where would you be getting the kind of yield you get on road projects and real estate InvITs. On the fixed income side also, I see sustained flows coming in."
The bilateral trade between the two countries totals $8 billion annually. While a proposed early-stage trade India-Canada deal was paused by Canada, there are no immediate areas of concern for Indian IT industry, the apex IT body Nasscom said recently.
Data available with stock exchanges on bulk deals showed no major signs of Canada-linked selling so far. The picture will be clearer, as soon as India Inc starts disclosing shareholding patterns, which is still a week or two away.
Two of Canada's sovereign funds CPPIB and CDPQ own stakes in a dozen of domestic stocks. As per depository NSDL, there were 818 registered FPIs with country of origin as Canada. At the end of August, FPIs from Canada managed Rs 1,50,871 crore in asset under custody, the seventh largest in India. This was, however, a mere 0.47 per cent of BSE's total market capitalisation of Rs 3,17,94,585 crore, as of Wednesday's trade. On the other hand, AUC managed by FPIs in US, Canada's neighbour, at Rs 22,31,200 crore account for 7 per cent of BSE m-cap.
While foreign outflows in September stood at Rs 12,716 crore, one must also note that the flows were receding in the past couple of months. For example, foreign inflows in August at Rs 12,262 crore were less than Rs 46,618 crore inflows in July. Foreign inflows had hit a high of Rs 47,148 crore in June.