India-focussed offshore funds, ETFS log $1.28 bn outflow in Q4
NEW DELHI: India-focused offshore funds and exchangetraded funds (ETFS) experienced a net outflow of $1.28 billion in the three months ended March 2022, making it the 16th consecutive quarter of withdrawal, according to a Morningstar report released on Monday.
This was way higher than the net outflow of $435 million registered during the December 2021 quarter.
Escalation in geopolitical tensions due to the war between Russia and Ukraine, hikes in interest rates by the US Fed along with its hawkish guidance, volatile crude prices, and surging inflation globally, among other causes, prompted investors to turn risk-averse during the quarter under review, the report noted.
Subsequently, investors began to move out of the emerging markets like India, which are relatively riskier and more prone to such challenging times, and they began to invest in safehaven investments, such as gold or the US dollar, it added.
India-focused offshore funds and ETFS are some of the prominent investment vehicles through which foreign investors invest in the Indian equity market. Through the calendar year 2021, the India-focused offshore funds and ETFS category had a net outflow of $2.45 billion, sharply lower than the net outflow of $9.26 billion recorded in 2020.
During the three months ended March 2021, the Indiafocused offshore fund segment witnessed a net outflow of $800 million compared to the net inflow of $638 million in the preceding quarter.
Given the challenging environment on the global and domestic fronts, India-focused offshore ETFS also experienced net outflows of $475 million during the quarter. This was in stark contrast to the previous quarter when the segment had net inflows of around $203 million. Flows into offshore funds are generally considered to be long-term in nature, whereas flows into offshore ETFS indicate predominantly short-term investment.
Going ahead, the future trend of the flows in the Indiafocused offshore fund and ETF category would revolve around how it fares against comparable economies on the growth prospects from a long-term perspective, the report explained.