Norway’s sovereign wealth fund, the world’s largest, will increase its holdings “significantly” in India as Prime Minister Narendra Modi opens Asia’s third-largest economy to investments and competition.

The fund today revealed that it raised its holdings of Indian bonds and stocks to 0.9 percent of its fixed-income and equities portfolios, as part of a broader plan to increase its presence in emerging markets and generate bigger returns.

“India is one of those markets where you should expect that we will continue to increase our investments over time, significantly,” Yngve Slyngstad, chief executive officer of the Oslo-based fund, said in an interview after a press conference today. “Relative to the size of the economy our investments are smaller than you would expect.”

Foreign investors are increasing investments in India at a faster pace than in any of the seven other Asian markets tracked by Bloomberg. The Sensex index has jumped 28 percent this year, rallying after Modi in May won elections by the biggest margin in three decades on promises to create more jobs and lift growth. Since taking power, Modi has shifted toward more market-based energy pricing, allowed more foreign investment in the defense industry and pushed to revive the manufacturing sector.

“The changes that we have seen have given us more confidence that we will have good investment potential in the coming years,” Slyngstad said. “We will continue to increase our investments there, both on the fixed-income side and in regards to our company investments.”

David Fuller's view

Interest in India among foreign investors is growing by the day, and it started from a very low floor before Narendra Modi was swept to power with an overall majority. 

So far it has been largely one-way traffic, with some investors taking short-term profits and finding that they have to pay up to get on board once more.  Obviously, this will not always be the case and a break in the progression of rising lows, with the latest near 26000, will most likely indicate a medium-term reaction. 

That would probably be another buying opportunity and I would not be surprised to see India outperform most other stock markets over the next four years, and considerably longer while Modi remains prime minister.  India now has a leader who will slow the brain drain by reducing bureaucracy and corruption, and unleash the country’s vast economic potential.