India-Canada fracas cast gloom on equity investments

Investors are keeping their fingers crossed that the diplomatic row between Canada and India does not snowball into a full-fledged financial tussle. Perhaps for the first time after the end of the Cold War, India’s foreign relations have reached a nadir with a G7 nation to the extent of expulsion of diplomats from both sides.

The growing tension between the two nations is a big cause of concern for equity investors as the Canadian Pension Plan Investment Board (CPPIB) invested around $2 billion into some of the blue-chip Indian stocks listed under the NSE-500 Index. Also, the Asset Under Management of CPPIB in various infra projects and companies is worth $20 billion or ₹1.7 lakh crore.

As per regulatory filings and Capitaline data, CPPIB holds a 1.65% stake in Kotak Mahindra Bank, a Nifty-50 stock and its current holding is worth ₹5,912 crore. CPPIB also holds stakes in new-age consumer technology companies like Zomato worth ₹2,354 crore (1.33% of outstanding shares), Delhivery worth ₹937 crore (3.17%), Nykaa worth ₹681 crore (1.35%) and One 97 Communications worth ₹714 crore (1.77%). CPPIB also holds a 2.86% stake in SBI Life Insurance worth ₹2,884 crore while a 2.19% stake in telecom infrastructure giant Indus Towers Limited worth ₹1,175 crore.

Despite owning stakes in blue-chip stocks, simmering tension between the two nations may turn into a big setback for Indian infrastructure projects as the flow of funds from Canadian firms, who are big investors in these projects, may come to a screeching halt. In March this year, two big Canadian Pension Funds invested $438.3 million (C$595 million) in India’s National Highways Infra Trust (NHIT).

In the trust backed by the Indian Government for developing National Highways, the Canada Pension Plan Investment Board and the Ontario Teachers’ Pension Plan Board invested C$297 million and C$298 million, respectively.

Canadian Pension funds invested $8.61 billion (C$11.9 billion) in India in the last five years (between 2019 and 2023). Canada’s investment in India hit an all-time high in 2020 with Brookfield Asset Management’s $2.17 billion (C$3 billion) acquisition of RMZ Corp, India’s realty portfolio.

Bilateral Trade between Canada and India

As per a research note by Shruti Jhunjhunwala, a research scholar with the Asia Pacific Foundation of Canada’s International Trade and Investment, Canada’s current FDI represents only 0.57% of India’s total FDI inflow. Canada and India invested around $26.43 billion (C$36.5 billion) in each other’s economies from 2014 to 2023 where around 90% were Canadian investments in India, the research note says.

Over the past decade, Canada-India two-way trade in merchandise nearly doubled from $4.63 billion (C$6.4 billion) in 2014 to $9.17 billion (C$12.67 billion) in 2023.

From 2014 to 2023, Canada’s exports to India were dominated by three sectors: metal ores and non-metallic minerals $7.96 billion (C$11 billion), farm and fishing food products $5.47 billion (C$7.56 billion), and energy products $5.46 billion (C$7.55 billion). Energy products include large shipments of bituminous coal from British Columbia, potassium chloride from Saskatchewan, and unsorted diamonds from the Northwest Territories.

In contrast, Canada’s imports from India were dominated by consumer goods worth $17.38 billion (C$24 billion), metal and non-metallic mineral products worth $3.9 billion (C$5.4 billion), and Chemical and Plastic and rubber products worth $3.54 billion (C$4.9 billion).

Canadian investments in India’s energy sector and, reciprocally, India’s investment in Canada’s technology and resource sectors, could support the two sides’ broader strategic objectives: Canada can reduce its dependence on the US for energy exports, while India can try to meet its growing energy demand, the research note suggests.