Even as relations between India and Canada go through a rough phase after Canada’s allegations of an Indian hand in the killing of Hardeep Singh Nijjar, a pro-Khalistan leader in Canada, followed by the expulsion of diplomats, experts think it will have very little impact on Canadian investment in India and the overall market sentiment.
Concerns have been growing that the fresh tensions in the India-Canada relationship will see some outflow as Canada Pension Plan Investment Board, the largest pension manager in Canada, has significant holdings in some of the Indian companies.
Canada Pension Plan Investment Board disclosed an investment of $21 billion ( ₹1.74 lakh crore) in India about a year ago. Major holdings include a stake in Mumbai-based Kotak Mahindra Bank and stakes in approximately 70 other Indian publicly traded firms.
Also read: Mint Primer: Why India-Canada relations have soured
Canadian Pension Fund’s major holdings
Experts observe that the Canadian Pension Fund has overall investments of over ₹1 lakh crore in some of the Indian firms and even though there are no immediate risks, these companies may feel some pressure if the India-Canada tensions escalate further.
June-quarter shareholding pattern data available on BSE shows that the Canadian Pension Fund held a 6 per cent stake in Delhivery at the end of the June quarter. Besides, it held about 2.68 per cent stake in Kotak Mahindra Bank, 2.42 per cent stake in Zomato and 2.18 per cent stake in IndusTower as of June 30, 2023.
The Canadian Pension Fund also held a stake of 1.76 per cent in Paytm and a stake of 1.47 per cent in Nykaa.
Apart from this, the Canadian Pension Fund holds a stake in some of those Indian firms that are listed overseas. For example, it owns a stake worth nearly $11.92 million in Wipro‘s US-listed shares. The Canadian Pension Fund also has a stake of roughly around $21.7 million in the US-listed shares of Infosys. In the US-listed shares of ICICI Bank, the Canadian Pension Fund holds a stake of around $10 million.
India-Canada key trade data
According to Invest India, Canada is the 18th largest foreign investor in India with an overall investment of about $3,306 million from April 2000 to March 2023. Thus, Canadian investment represented about 0.5 per cent of the total FDI (foreign direct investment) inflows into India. India was Canada’s ninth-largest trading partner in 2022. Services and infrastructure together accounted for 40.63 per cent of the total FDI investments from Canada to India.
Over 600 Canadian companies have a presence in India and over 1,000 Canadian companies are actively pursuing business in the Indian market, according to Invest India.
According to the data available at the Ministry of Commerce, India’s total exports to Canada stood at $4,109.74 million in FY23 which was 0.9 per cent of India’s total export of $450,958.43 million in the last financial year.
On the other hand, India’s total imports from Canada in FY23 stood at $4,051.29 million which was nearly 0.6 per cent of India’s total imports of $714,042.45 million for the year, Ministry of Commerce data showed.
According to a PTI report, India’s exports to Canada include pharmaceuticals, gems and jewellery, textiles, and machinery, while Canada’s exports to India include pulses, timber, pulp and paper, and mining products.
If we talk about personal remittances, in 2022, India received nearly $859.83 million in personal remittances from Canada, according to World Bank data.
No major impact on market sentiment
The souring India-China relationship may not have a significant impact on the domestic market sentiment, experts say. They also say that it is unlikely to impact Canadian investments in India and even if it does, investors should buy those stocks that see a selloff from the Canadian Pension Fund.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services underscored that the straining of India-Canada relations is a near-term sentiment negative. However, this is unlikely to have any significant long-term impact on the market.
“The Canadian Pension Fund’s investments in India’s new age digital companies like Paytm, Zomato, Nykaa and Delhivery and in the ADRs of blue chips like Infosys, ICICI and Wipro are not too significant to impact the market. If these stocks trend down due to the negative sentiments, investors can use the correction as a buying opportunity,” said Vijayakumar.
Prashanth Tapse, Senior VP (Research) at Mehta Equities believes tensions between India and Canada are unlikely to impact Canadian investments in India.
“There has been a mixed sentiment with regard to the development of the India-Canada relationship. We think if tensions escalate further, Canadian Pension funds may consider reviewing and withdrawing some investments. They have a good amount of exposure in sectors like real estate, renewables and the financial sector which would remain in focus,” said Tapse.
“We also believe both countries will meet and settle the tensions as it is believed that Canadian funds find a lot of opportunities in India and have a positive outlook on the long term,” Tapse said.
Parth Nyati, Founder at Tradingo pointed out that the market currently appears to be relatively unfazed by the tension between India and Canada.
“Despite the significant investments made by the Canada pension fund in the Indian equity market and the exposure of many Indian IT companies to the Canadian market, the market seems to be taking a more composed stance, viewing the issue primarily as a political one. Immediate implications on trade relations between the two countries are not perceived to be substantial,” said Nyati.
Nyati said pension funds, known for their long-term investment perspective, typically do not react hastily to such geopolitical events. They maintain a strategic outlook and are likely to wait for developments before making any major adjustments.
“There’s a reasonable expectation that this issue will be resolved over time. However, should the tension escalate further, a thorough analysis of the situation will be warranted. At this moment, it’s crucial for investors to remain steady and avoid succumbing to panic,” said Nyati.
Jayden Ong, Senior Market Analyst, APAC at Vantage said as tensions between Canada and India continue to rise, the Indian market will be indirectly affected. It is expected that this information will be digested by the market.
“Canadian pension funds such as CPPIB and CDPQ are the largest institutional investors in companies and projects in industries such as energy, infrastructure, and banking in India. It is expected that the Indian market will continue to be active and will not be affected by the India-Canada tensions,” he said.
Read more: India, Canada relationship getting tense: Can it impact trade relations?
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
