Canada and India’s CEPA opens doors for plan sponsors but demands due diligence for emerging markets portfolios, says Fauzia Babar
Canada's push to rebuild economic ties with India is forcing plan sponsors to reconsider whether their emerging market exposure treats the country as a tactical bet or a structural allocation, according to one investment consultant.
After all, the proposed Comprehensive Economic Partnership Agreement (CEPA), part of the Carney government's broader push to “Build Canada Strong” and diversify Canada's international partnerships, also spans critical minerals, clean energy, infrastructure and digital technology.
CEPA will help redevelop relationship with India
Fauzia Babar, senior investment consultant at People Corporation, emphasized how the agreement represents a political commitment to rebuild ties after a period of diplomatic strain but also cautioned that it does not replace the need for rigorous investment governance.
"CEPA is focused on expanding market access, services, trade in investment flows and cooperation in areas such as critical minerals, clean technology, agriculture, advanced manufacturing and digital technologies," she said, adding the agreement signals a shift in how Canadian institutions may need to think about India within their portfolios.
"For sponsors, the key implication is that India is evolving, moving from a tactical emerging market exposure into a potentially more structural allocation," she added, underscoring the Canada-India corridor is increasingly functioning as a two-way channel for both capital and commercial activity.
India-Canada investments in energy portfolios
According to an insight newsletter recently published by Dentons, the two countries also announced a Strategic Energy Partnership this past spring, spanning liquefied natural gas, liquefied petroleum gas, uranium, solar and hydrogen.
The firm noted that Canada has reaffirmed plans to expand LNG supplies to the Indo-Pacific, targeting 50 million tonnes per year by 2030 and up to 100 million tonnes by 2040, while the two governments are also working toward India's first long-term LPG supply arrangement with Canada.
On the nuclear side, Dentons highlighted a CA$2.6 billion agreement between Saskatoon-based Cameco and India's Department of Atomic Energy covering nearly 22 million pounds of uranium from 2027 to 2035 as the partnership's first concrete deliverable.
The clean energy agenda includes memoranda of understanding on critical minerals and clean energy cooperation, Canada's stated intention to join the International Solar Alliance and a commitment to hold a Renewable Energy and Storage Summit in 2026.
Dentons also noted that India's large-scale infrastructure investments - from transport to smart cities - present opportunities for Canadian engineering firms and pension funds.
“The renewed Canada-India partnership presents significant opportunities in trade, energy, critical minerals, infrastructure and investment,” the firm said in a statement. “Ongoing CEPA negotiations are a development to monitor closely, as the eventual agreement is expected to set the legal framework for trade and investment between the two countries.”
CEPA signals a strategic portfolio realignment
Babar believes the partnership extends beyond the mechanics of a single trade deal. She characterized it as a broader strategic realignment that reflects growing economic confidence on both sides.
For institutional investors already active in India, Babar said the policy reset reinforces existing convictions and supports continued deployment across both public and private markets. Meanwhile, those that have stayed underweight, face one fewer barrier to entry now that diplomatic uncertainty has eased, she said.
She stressed, however, that the political shift should not override fundamental investment discipline.
"Investment decisions should still be driven by valuations and governance quality where manager selection is extremely important, including portfolio objectives rather than politics alone," she said.
CEPA brings pension risk for sponsors
For funds without prior Indian market exposure, Babar said the renewed partnership opens the door to exploration but cautioned that it also doesn’t guarantee outcomes.
"It does not eliminate the need for continued due diligence," she said.
The question of residual political risk notably remains relevant. Institutional investors have priced in a degree of geopolitical risk tied to the Canada-India tensions of recent years, and Babar acknowledged that premium hasn’t fully closed.
"Even though there is likely still some residual political and geopolitical risk embedded in investor perceptions, particularly given the tensions that affected Canada and India in recent years, this appears to be changing the investor confidence that both governments are committed to building the relationship," she said. "It would be premature to say that it has fully disappeared because any sort of decrease in risk does take time.”
What CEPA means for pension plans
According to Babar, India's role in the partnership is multifaceted. Canadian pension capital is flowing into Indian infrastructure projects, while India is simultaneously emerging as a growing consumer and industrial market, a technology and innovation hub, a supply chain partner with expanding manufacturing capacity, and a source of talent, entrepreneurship and investment.
Babar described the relationship as a two-way corridor rather than a one-directional capital stream, noting that India also serves as a destination for Canadian exports and services. The timing carries additional weight, she said, given Canada's push to diversify its international partnerships in the wake of tariff-related tensions with the United States.
"The strategic partnership with India comes at a very critical time for the overall Canadian economic development," she said.
As for pension plans, particularly for defined contribution (DC) members, the implications extend to them as well, even if indirectly. She underscored that many target date funds within large institutional DC plans already carry emerging market exposure, which means members are participating in this growth whether they are actively tracking developments in the space.
The key, she said, is ensuring plan members are in the target date fund that matches their risk profile, particularly since DC members may lack the time or expertise to evaluate emerging market dynamics on their own.
“Having exposure to emerging markets through those target date funds allows them the appropriate diversification that they need and also allows them to access the overall growth that is going to happen in the emerging market space,” said Babar.
At the consulting level, she emphasized the partnership hasn’t changed the advice People Corporation gives to its plan sponsor clients. The firm continues to stress diversification, manager oversight and regulatory due diligence above all else.
"Even though this political scenario may increase confidence around long term engagement as a consultant, we're still likely to emphasize, and we are emphasizing that plan sponsors ensure that portfolios are diversified, that there is careful assessment of any operational and regulatory risks," she said.
