MUMBAI — Quebec’s public pension fund manager has made major recent investments in India’s highways, solar power installations and private tech companies, but its newly installed country head sees plenty of opportunity for more growth.

The Caisse de dépôt et placement du Québec (CDPQ) opened an office in New Delhi in March 2016, its fifth outside North America and third in Asia, as it sought to diversify globally. CDPQ now has more than $7 billion in assets on the subcontinent across infrastructure, real estate, public-market stocks, private equity and debt; that’s up from less than $200 million in December 2006. Its holdings across the Asia-Pacific region accounted for 11 per cent of the firm’s $419.8 billion total at the end of last year.

India is in a demographic “sweet spot,” with a “tremendous amount of urbanization” driving consumer spending and the need for infrastructure across the subcontinent, said Saurabh Agarwal in an interview with The Logic, his first with international media since being named managing director of CDPQ India in March. He also cited the country’s stability, political regime and neutral stance in international affairs as attractive factors; India has not condemned Russia’s invasion of Ukraine, despite calls from the U.S. and its allies. 

“Most investors we talk to [take the view that] India is a destination where you can do fair business,” said Agarwal, noting that the government wants to attract long-term investors to the country and is receptive to their concerns. He was among a small group consulted on New Delhi’s plan to sell businesses operating rights for public infrastructure. The government estimates the program will generate ₹6 trillion ($103.6 billion) in revenue over four years.

Agarwal, who continues to lead CDPQ’s infrastructure business in South Asia, sees opportunities in India’s energy transition and growing tech adoption on the subcontinent. The fund manager owns 53.4 per cent of New Delhi-based Azure Power, which has 2.9 GWs of operating solar and other renewable projects, with almost 4.5 GW more contracted. Fellow Canadian institutional investor OMERS has a 21.4 per cent stake in the New York Stock Exchange-listed firm, which made ₹13.3 billion (US$179 million) in revenue in the nine months through December 2021.

In November 2021, the government announced a target of 500 GW in generation capacity from non-fossil fuel sources by 2030; renewables currently contribute 113 GW. “Azure is effectively contributing to India’s goals for renewable power generation,” said Agarwal. “We know there is tremendous opportunity.” CDPQ also makes money moving electricity to market. This week, the fund manager paid ₹6.6 billion (US$83 million) for an additional 10 per cent stake in Mumbai-based Apraava Energy, which it now splits with Hong Kong’s CLP Group. The utility runs power generation and transmission infrastructure, and is eyeing distribution deals.

In September 2021, CDPQ pledged $10 billion for a new “transition envelope” that will fund firms to reduce emissions. While the fund manager doesn’t have specific geographic targets, Agarwal expects to spend some of that cash in India. “Anything where we can have a conviction that a particular business plan can convert and transition from black to green, we will be willing to fund that,” he said, noting that the firm is advising New Delhi on fine-tuning its energy policy.

CDPQ is a major funder of tech startups in North America, and it’s following other Canadian institutional investors into India’s booming sector. In November 2019, it participated in a US$220-million financing round for digital drugstore PharmEasy. In April 2021, it put US$100 million into Druva, a cloud backup firm that is headquartered in Santa Clara, Calif., but has extensive operations on the subcontinent. 

For tech investments in India, CDPQ is focused on firms at the Series C stage and beyond with annual recurring revenues of more than $75 million plus and “a clear path to profitability,” said Meng Ann Lim, managing director of direct private equity for Asia Pacific. It’s actively scouting on the subcontinent, and is typically looking to write cheques of about $100 million. CDPQ is also a limited partner in one of Sequoia Capital’s India-focused venture funds as well as local financiers Fundamentum and Kedaara Capital.

For his part, Agarwal sees opportunities in the building blocks that undergird India’s soaring Internet connectivity. CDPQ has been “tracking investment opportunities in [the] digital infrastructure space,” he said, citing both telecom and data centres. The fund manager has acquired such assets in other markets, including emerging economies; in March 2021, it paid $408 million for half of FiBrasil, which runs fibre-optic networks across Brazil. 

Other Canadian institutional investors are already buying up digital infrastructure in Canada; Brookfield Infrastructure and British Columbia Investment Management own leading wireless carrier Reliance Jio’s telecom towers, while the Canada Pension Plan Investment Board has a stake in those of rival Bharti Airtel. 

Central banks around the world are warning of the risks of economic slowdown coupled with high inflation. “The next two years are going to be certainly turbulent,” said Agarwal, noting that a global recession could impact India, which relies on imported oil and where consumers are watching prices spike.

CDPQ’s infrastructure portfolio has some inbuilt advantages to handle such an environment. “Roads [are] a natural hedge on inflation,” Agarwal said, since tariffs increase based on a linked formula. “We are ultimately looking for yield, because we are pension investors.” The fund manager’s Maple Highways owns more than 200 kilometres of six-lane tarmac in the National Capital Region and the eastern state of Odisha. 

Agarwal expects India to fare relatively well in a slowdown, citing the consumption of a booming population and significant domestic capital available. “It will settle at a lower-growth environment, but it will not be a negative growth environment, which we will see elsewhere in the world,” he said.