Why India is among top picks of sovereign wealth funds and pensions funds

India’s economy may be growing slower than earlier expected, but the country remains a favourite destination for global investors. 

India has emerged as the second most coveted investment market after the United States for sovereign wealth funds and public pensions funds in 2022, according to a study by asset manager Invesco published on Monday.

Sovereign investors, which now manage some $33 trillion in assets, have also seen a rapid rise in allocations to private markets, though this development might start to slow with fixed income back in favour, the Invesco Global Sovereign Asset Management Study said.

What sort of returns have sovereign investors seen over the past year?

Average annual returns for sovereign investors over the past decade stood at 6.5% and, for sovereign wealth funds alone, at 10% in 2021, Invesco found. However, 2022 could prove to be a turning point with higher inflation and tighter monetary policy hitting long-term expected returns.

So, which are some of the top investment destinations according to the report?

While the United States remained the top destination, some sovereign investors were keen to rebalance portfolios, fearing they had become overly reliant on U.S. markets which left them vulnerable to the correction in equity markets seen this year, Invesco said. Back in 2014, the UK was the most desirable destination.

Emerging markets were set to benefit from the latest shift, the study predicted.

Where is China placed?

Among developing nations, India has overtaken China as the most popular emerging market, having climbed to No. 2 in 2022 from No. 9 in 2014. China currently ranks in the sixth place.

"While this is partly because funds with dedicated Asian allocations are trimming their China exposure, investors have commended India's positive economic reforms and strong demographic profile," the study found.