As India witnessed net foreign equity outflows of Rs 12,000 crore in September, coinciding with a flare-up in India-Canada diplomatic tensions, questions arose about the impact of these disputes on foreign investments. However, market analysts suggest that the recent dollar outflows are more attributable to hawkish US Federal Reserve commentary and the resulting surge in the dollar and treasury yields. They argue that India’s attractive yields on both equity and fixed income assets remain unmatched.
Deepak Shenoy, Founder at Capital Mind, stated, “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.”
Comparing India’s Situation with Norway: A Different Scenario
India’s case differs markedly from that of Norway, where the Norges Bank Investment Management divested Russian assets in 2022 following Russia’s invasion of Ukraine. The CEO of Norges Bank Investment Management, Nicolai Tangen, later admitted that selling assets as instructed by the government would take time.
In the Indian context, Canadian Prime Minister Justin Trudeau has accused the Indian government of ‘potential’ involvement in the murder of a Khalistani extremist on Canadian soil, an allegation India has rejected as ‘absurd and motivated’. Trudeau has also expressed a lack of intention to “provoke or cause problems.”
Independent Market Analyst Ajay Bodke noted that Nordic countries such as Norway, Sweden, and Finland are known for their strong opinions on ESG mandates and human rights, often divesting from violators. In contrast, Canadian investments in India have strong financial motivations.
“Baap Bada Na Bhaiya, Sabse Bada Rupaiya”: Investment Returns Matter
Ajay Bodke highlighted that despite the simmering India-Canada issue, the absence of selling from Canadian investors so far suggests it is unlikely to occur in the future. India remains a favored destination for Foreign Portfolio Investors (FPIs), especially in the context of the “China +1” strategy, government reforms, Production-Linked Incentive (PLI) schemes, and robust economic growth. Financial returns play a pivotal role in investment decisions.
Regarding Canadian pension funds, Bodke questioned, “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.”
Economic Impact and India-Canada Trade Relations
The bilateral trade between India and Canada stands at $8 billion annually. Although a proposed early-stage trade deal was paused by Canada, there are no immediate concerns for the Indian IT industry, according to Nasscom.
As of now, data available on bulk deals from stock exchanges has not shown significant signs of Canada-linked selling. A clearer picture will emerge once Indian companies begin disclosing shareholding patterns, which is expected in a week or two.
Canada’s sovereign funds CPPIB and CDPQ own stakes in several domestic stocks, and there were 818 registered FPIs with Canadian origins, as per depository NSDL. These investments represent a significant portion of India’s financial landscape. While foreign outflows reached Rs 12,716 crore in September, it’s important to note that foreign inflows had been receding in the preceding months.
