Pension funds have capitalised on the strong performance of India’s stock market, posting an impressive one-year return of 35.63 percent from equity investments, according to the latest data from the Pension Fund Regulatory and Development Authority (PFRDA). This surge comes on the back of a significant bull run, driving up National Pension System's (NPS) assets under management (AUM) to Rs 12.65 lakh crore as of August-end 2024, almost a 30 percent year-on-year growth.

Indian indices have been on a relentless tear since the end of the pandemic was declared, pushing pension funds' equity returns to over three times that from corporate bonds, which recorded an 8.52 percent return in one year. Government securities and central and state government schemes saw more modest gains of 10.66 percent, 12.86 percent and 12.93 percent, respectively, over the last year, according to the PFRDA data accessed by Moneycontrol.

Over a three-year period, pension funds have achieved an average equity return of 18.56 percent. The NPS's average equity return stands at 14.26 percent since inception, underscoring the long-term potential of equity investments within the scheme.

The stock market's outperformance has been driven by optimism surrounding India’s long-term economic prospects, leading to positive sentiment from investors, global brokerage firm Jefferies had said. Despite recent volatility and concerns over first-quarter earnings and GDP growth slowing to 6.7 percent, many analysts remain confident about the country's economic trajectory.

Jefferies echoed this optimism, projecting that India will become the world’s third-largest economy by 2027, overtaking Japan and Germany. The firm attributes this to consistent GDP growth, favourable geopolitical conditions and ongoing reforms. Jefferies also predicted that India’s market capitalisation, currently valued at $4.5 trillion (making it the fifth-largest in the world), could reach $10 trillion by 2030.

“Continued reforms should maintain India’s fastest growing large economy status. Strong trends in domestic flows have reduced market volatility and decadal low foreign ownership offers valuation cushion. Return on equity-focused corporate sector with 167 companies having more than $5 billion market cap leave ample choices to investors,” wrote Mahesh Nandurkar, India equity analyst at Jefferies.

NPS assets and subscriber growth

The NPS may be one of the later entrants, but the retirement scheme has seen robust growth since its launch in 2004, with total AUM reaching Rs 12.65 lakh crore till August-end, which is a significant increase from Rs 9.65 lakh crore as on August 26, 2023.

PFRDA chairman Deepak Mohanty had on June 21 expressed confidence that the combined NPS and APY corpus could rise to Rs 15 lakh crore by the end of FY25. The government has announced that the new Unified Pension System (UPS) will be introduced from April 1, 2025.

Subscriber growth has also been notable, with 16.33 lakh new subscribers having joined the NPS from Aug 24, 2023 to Aug 24 2o24. The PFRDA is aiming for 11 lakh new enrolments from the private sector by the end of the fiscal year. Over the last one year, the "All citizens" segment saw 6.94 lakh new subscribers, while the number for the corporate segment was2.75 lakh. NPS' all citizens model is a voluntary retirement savings scheme that provides pension benefits to all working-class citizens. The corporate model is a customised version of the NPS that allows organisations to offer their employees the benefits of NPS.

As of August 24, the total number of NPS and APY subscribers stood at 7.70 crore, a 16.24 percent increase from 6.62 crore in the previous year, according to the PFRDA data.