India’s green gambit: mapping the country’s transition investment opportunity

India is experiencing a listing boom with 106 companies having gone public through the National Stock Exchange (NSE) this year alone. Glance through the recent NSE pipeline and the lustre of India’s energy transition is hard to miss.

Fujiyama Power Systems, a solar energy manufacturer, listed last month. Emvee Photovoltaic, another solar manufacturer and Tenneco Clean Air, an Indian subsidiary of an American engineering company did too.

All are emissions reducers whose IPOs attracted hefty foreign institutional bids. While listed assets lean into reducing India’s emissions – they are one part of the wider India Transition Inc.

Companies financed by India’s private markets are building technologies to adapt. For foreign asset owners looking to cash in on India’s energy transition, therein lies a clue – adaptation as an investment theme, in sharp contrast to mitigation, is largely private.

IPO boom

When Dr. Harish Ahuja, NSE’s head of product and strategy development for power and carbon markets spoke at the Climate Bonds Initiative’s annual conference earlier this year, he came armed with fact-filled slides.

16%, one of the slides highlighted, of the funds raised through India’s IPO market were ‘green equity’. Dr Ahuja told a room full of investors in London that this was just the beginning.

Santosh Singh, partner and managing director at Intellecap – the advisory arm of Aavishkaar – an impact investor, says the green listed equity boom has been brewing for some time.

“I would say that what you are seeing now, in solar for instance, is comparable to the growth of a bamboo crop”, Singh says. His comparison sheds light on the years of incremental progress behind the headlines.

“You're not seeing the four, five, six years of preparation. What you're now seeing is the pace of the bamboo growing”, he notes.

That progress has attracted asset owner attention. In September, the Ontario Teachers’ Pension Plan (OTPP) set up an office in Mumbai, the country’s financial capital. The fund has over $3bn invested in India, including a 30% stake in Mahindra Group’s solar energy platform.

In January last year, the two partners co-sponsored India’s largest listed renewable energy infrastructure investment trust.

“This milestone not only reinforces our commitment to invest globally in green and transition assets but also demonstrates the attractiveness of renewable energy investment opportunities in India.”, Deb Hajara, OTPP’s managing director for infrastructure and natural resources said at the time.

Adaptation finance

Aavishkaar Group, of which Singh is a part, is one of the country’s largest impact investors. The company, named after the Hindi word for innovation, has $1.3bn under management.

Impact investors such as this, offer another side to the Indian transition investment opportunity – private markets. Singh says this is where the differences between adaptation and mitigation opportunities are stark.

“Adaptation finance is still fizzling in comparison to what mitigation finance is. And when I say fizzling, I'm not only talking about the quantum of money, but I’m also talking about the mechanics, the instruments, the institutions and the way you deploy”, he told Net Zero Investor.

Singh’s investment thesis splits adaptation into three tech-based investment buckets.

“One where the technology is emerging and is yet to reach commercial scale. The second one is where technology is mature, but the business model is emerging and then third one has gone through all the cycles and is mature”, he explains.

The first two, he reckons, is where adaptation technologies are. Think building materials and agriculture.

“There are many sectors in adaptation where the economics is solved, and the value is very well established, but the market pricing of that value is still emerging”, Singh says.

Despite it being early days, Singh’s view is that there are opportunities worth considering. Those who understand, track and invest in disruptive technologies – the kind that adaptation plays such as materials are working on – will reap the benefits he reckons.

To that end, Singh agrees with the notion that adaptation investment opportunities in India are where mitigation ones were ten years ago.

Fair to compare?

He does, however, warn against comparing mitigation and adaptation for the purposes of designing an investment strategy in India: “this comparison between adoption and mitigation is misplaced”, Singh warns.

“Adaptation is decentralised, these technologies focus on very different kind of problems, which are the specific to a place or specific to a context and hence the technological mix is very different”, he points out.

To that end, as an impact investor on the ground in India, Singh has a message, “while mitigation was our global commitment, adaptation is a local promise”.

At last count, India had installed over 127GW of solar power, sitting alongside 53.12GW of wind capacity. This year, the country achieved a milestone – the share of renewables in installed electric power exceeded 50%. That was five years ahead of schedule.

To investment teams at OTPP’s Mumbai base, these numbers will provide food for thought. Renewable energy stocks will provide avenues worth considering. Yet, lurking in the shadows of an IPO boom, is a widening range of adaptation technologies.

This time, however, will likely be different. Tapping into a new investment paradigm in India, for foreign financiers, will require a change to their hitherto mitigation-led investment logic.