Is the Indian market ready for ESG funds or ethical investment options? And if so, where will we see the trend going in the coming years? This COVID-19 situation has shown that the markets need to pay attention to ecology as well.
Yes absolutely. But the dominant part of the markets seems don't really care. In India, ESG has not taken off. But Indian markets are substantially affected by ESG in a way that foreign investors invest heavily in India and a good part of this foreign investment has the ESG mandate. So, it is clear that investing in some of the PSU stocks or a few oil stocks or bellwether ITC could be one of the big exclusions. Although ITC as a company is sound on many parameters, ESG funds or ESG allocation coming to India may not buy it. Even they may not invest in many public sectors or metal stocks.
So, I would say that it is already having a bearing on the Indian market in terms of investors' preference for such stocks but it may take some time for India. Once the investment is driven by such preference, then their performance becomes a self-fulfilling prophecy in a sense that people buy the ESG mandate, buy ESG-compliant stocks and ignore those stocks that do not comply.
So for Indian investors, it may not become a mainstream way of investing. Some funds have already started and once they deliver returns and look little better than most others, then it may take off. But in India, performance is having a substantial bearing on the preference of the stocks and it is not yet a mainstream way of investing today.