China investment arms use P-Note, FPI routes too.

Mumbai: It’s not only direct investments like in HDFC in which the neighbouring country’s People’s Bank of China (PBoC) now has 1% stake. China, through its other investment arms China Investment Corp (CIC) and State Administration of Foreign Exchange (SAFE), has been investing in India for years now. 

These institutions have been investing through the foreign portfolio investment (FPI) route as well as through the more opaque participatory note (P-Note) route, institutional dealers and fund managers said. Another China government arm that’s also showing interest in India is the Industrial & Commercial Bank of China (ICBC). In the past few years, these investment arms have also been investors in some of the exchange-traded funds (ETFs) floated by global fund managers, they said. 

In India, such ETFs are registered as FPIs under markets regulator Sebi. Currently, CIC manages about $900 billion, ICBC about $600 billion, while SAFE is the agency that manages China’s forex reserves, currently at over $3 trillion. 

According to a top fund manager, in one of the India-focused ETFs that was floated by the Hong Kong arm of a US-based financial major, CIC was the anchor investor. An anchor investor usually invests between 15% and 25% of the total target amount of the fund, which also gives confidence to other investors to invest in that fund. 

The two arms of China have been investors in several ETFs in recent years, some of which were Asia-focused, while some were more concentrated and, as a result, invested in Indian companies. 

According to an institutional dealer, the Chinese sovereign funds — CIC and SAFE — have mostly been very patient investors and, after buying some minority stakes, remained invested for years. 

“They also took the passive investment route…coming through ETFs,” the dealer said. “SAFE mostly bought a basket of stocks and never any single stock.” Buying a basket of stocks means buying several stocks at the same time, which is usually benchmarked against an index. For example, if an investor intends to buy a sensex basket, it means it will buy all the 30 sensex constituents and in a ratio that would mirror their weight in sensex.