India Surpassed China as the Most attractive Emerging Market for Investing

85 sovereign wealth funds and 57 central banks, representing USD 21 trillion in assets, claim that India has surpassed China as the most alluring emerging market for investment.

According to a study by the international investment management company Invesco, perceptions of India are improving due to its increased economic and political stability, favourable demographics, regulatory initiatives, and welcoming environment for sovereign investors.

The 'Invesco Global Sovereign Asset Management Study' report featured opinions from 142 chief investment officers, heads of asset classes, senior portfolio strategists, and representatives from 85 sovereign wealth funds and 57 central banks.

Amid persistent high inflation and real interest rates, investors are recalibrating portfolios.

According to the report, sovereign wealth funds favour fixed income and private debt, while emerging markets (EMs) with strong demographics, stable governments, and proactive regulation, particularly India, have become popular places to invest.

"Among the Emerging Markets, India has piqued sovereign investors' interest, overtaking China," the report stated.

India, it said, exemplifies the attributes sought by sovereign investors. “India has now overtaken China as the most attractive Emerging Market for investing in Emerging Market debt.” A development sovereign fund based in the Middle East noted, “We don’t have enough exposure to India or China. However, India is a better story now in terms of business and political stability. Demographics are growing fast, and they also have interesting companies, good regulation initiatives, and a very friendly environment for sovereign investors.”

The survey showed a “substantial share” of central banks were concerned by the precedent that had been set. Almost 60 per cent of respondents said it had made gold more attractive, while 68 per cent were keeping reserves at home compared to 50 per cent in 2020.

India’s PMI for manufacturing did not contract in the past year, but against expectations, FDI inflows fell 22 per cent to USD 46.03 billion in FY23 amid high inflation and recessionary trends in developed economies.