While political tensions have recently flared between Canada and India, institutional investors are unlikely to adjust their capital allocation to the country, says Partha Mohanram, John H. Watson chair in value investing at the Rotman School of Management at the University of Toronto.
“I don’t [have] any indication that you’re going to see any kind of a pullback,” he says.
Read: Canadian institutional investors monitoring dispute with India
Earlier this month, the federal government expelled six Indian diplomats on the same day the Royal Canadian Mounted Police accused the Indian government of being linked to murder, extortion and coercion in Canada. India responded by dismissing six Canadian diplomats from the country. The latest incident between the two countries is creating uncertainty around the signing of a proposed bilateral trade deal, he says.
India is one of the key emerging markets for Canadian institutional investors. Indeed, investments in the country by Canadian pension plan sponsors jumped from $28 million in the third quarter of 2023 to $111 million in the fourth quarter, according to a report by the Asia Pacific Foundation of Canada.
This increase was driven primarily by the Ontario Teachers’ Pension Plan’s $80 million investment in logistics service provider Xpressbees. In an online note, Veronique Erb, equity portfolio manager at RBC Global Asset Management, said India has a projected growth rate of six per cent over the next five years, indicating the country will stand as the third largest economy in the world by 2027.
Read: Canadian pension funds invest $2.6 billion in Asia-Pacific region in 2023: report
“India certainly is not going to take any steps like preventing Canadian funds from investing in India, because that would be self defeating, that would hurt [their] own capital markets,” says Mohanram. “That’s not going to happen.”
He adds institutional investors have the capacity to take a long-term view dictated by their fiduciary duty instead of making investment decisions based on reactionary market sentiment. However, he expects institutional investors to be cautious, but not hasty, in their decision-making around capital allocations in India.
Even if Canadian institutional investors were to consider reducing their India-based investments, he’s unsure which other emerging market would be as appealing. “Which other geography is likely to dominate [like] India and be large enough for it to matter?”