Sovereign funds moving early into next gold rush
equities. These institutional investors typically take a long-term view of target markets.
Their investment horizon may also offer a perspective to investors concerned over the rising benchmark indices and whether the rally can be sustained in the medium to long term. SWFs typically search for a macro opportunity in an economy.
A case in point is India’s electronic manufacturing services (EMS) sector.
The country contributes about 5% to the world’s electronics consumption but manufactures just 2% of the global production. Can a potential correction in this anomaly between consumption and production yield a good investment avenue?
According to CLSA, India’s EMS market is likely to grow at 22% over the next decade and mid-teens between FY30 and FY40 to reach $372 billion in FY40 or equivalent to the current EMS market in China. The Norwegian government’s global pension fund was one of the anchor investors in the IPO of Kaynes Technology, a Mysurubased EMS company in November 2022.
That anchor investment so far has earned a four-fold return. It has since increased its stake through secondary market purchases to 1.9% in September from under 1% at the time of the IPO.
The operational performance of Kaynes has been encouraging. Between FY21 and FY23, its revenue grew 2.7 times to Rs 1,126 crore while its operating margin expanded nearly 500 basis points to 14.9%.
Norway’s SWF also has a 1.8% stake in Syrma SGS, a peer of Kaynes Technology. In FY23, Syrma SGS’ revenue rose to Rs 2,092 crore compared with Rs 1,284 crore in FY21. SWFs generally spread investments across two to three companies in a sector to avoid concentration risk.
Apart from EMS, speciality chemicals, low credit-to-GDP plays, and global engineering and
