300% jump in net outflows from India-focused funds
Foreign investors pulled out $1.5 billion in Q1 — the 13th consecutive quarter of net outflows
India-focused offshore funds and exchange-traded funds (ETFS) as a category continued to witness net outflows. During the quarter ended June 30, the category witnessed net outflows of $1.5 billion, sharply higher than the $376 million worth of net pull-out in the previous quarter. June was the 13th consecutive quarter of net outflows for the category.
As much as $1.7 billion was pulled out of India-focused offshore funds in the June quarter – the 13th straight quarter of net outflows in the segment. On the other hand, India-focused ETFS witnessed net inflows of $153 million in last quarter (the third quarter of positive flows in a row), but less than the previous two quarters.
India-focused offshore funds and ETFS are among prominent investment vehicles through which foreign investors put money into the Indian equity markets. Flows into India-focused offshore funds are generally considered to be for a longer term, whereas flows into India-focused offshore ETFS are predominantly short-term money.
Despite net outflows from the Indiafocused offshore fund and ETF category, its asset base swelled during the quarter, because of the continued rally in the domestic equity markets.
Through the quarter, the assets under the category grew 4.1 per cent to $46.3 billion, from $44.5 billion recorded in the previous quarter.
The India-focused offshore funds and ETF category rose by 7.1 per cent during the quarter, thus marginally outperforming the MSCI India USD Index, which returned 7 per cent.
During the quarter ended June 2021, all three market segments — large, midand small-cap — continued their upward march. Although the markets witnessed a broad-based rally during the quarter, the mid- and small-cap segments outperformed the large-cap category by a huge margin. While the S&P BSE Sensex surged 6 per cent in the quarter, the BSE Midcap and the BSE Smallcap indices registered a gain of 11.7 per cent and 22.2 per cent, respectively.
"The impact and spread of the second wave of Covid-19 largely dictated the direction of flows from overseas investors into the country's equity markets during the quarter ended June 2021. FIIS closely tracked the pandemic's development while making their investment decisions as lockdowns in various states created an environment of economic uncertainty,” said Himanshu Srivastava, associate director, Morningstar Investment Adviser India.
But the scenario has improved a lot now. “Foreign institutional investors, which turned negative in April and May on the back of the second wave of the pandemic, came back strongly to invest in the Indian equity markets as conditions continued to improve,” he said.