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NEW DELHI: India-focused offshore fund and exchange-traded fund (ETF) category recorded net outflows of $1.28 billion during January-March, significantly higher than net outflows of $435 million during the quarter ended 31 December, according to Morningstar Offshore Fund Spy report. This was the 16th consecutive quarter of net outflows.
An offshore India fund is one that is not domiciled in India but invests primarily in Indian equity markets.
During the quarter under review, India-focused offshore funds segment experienced net outflows of $800 million, which was significantly higher than the net outflow of $638 million recorded during the quarter ended 31 December. Through calendar year 2021, the segment had net outflows of $3.47 billion, which was lower than the net outflow of $7.72 billion in 2020.
India-focused offshore ETF segment, which experienced a net inflow of $203 million during the December quarter, saw net outflows during the quarter ended March 2022 of $475 million.
“Given the risk-averse approach of foreign investors this year, foreign institutional investors (FIIs) chose to redeem investments from the ETF segment too, since it offers a relatively easy entry and exit route," Morningstar India said in the report.
Further, given the net outflows and correction in the markets, especially in the mid- and small-cap space, the asset base of India-focused offshore fund and ETF category declined by 7.3% from $50.4 recorded in the previous quarter to $46.7 billion.
Performance wise, the India-focused offshore funds and ETF category fell by 4.01% during the quarter, thus underperforming MSCI India USD Index, which fell by 1.81%.
During the March quarter, the market was largely driven by rising geopolitical tension due to the war between Russia and Ukraine, rate hike by the US Federal Reserve as well as hawkish guidance of more aggressive rate hikes, rising cases of coronavirus in some parts of the world, volatile crude prices, high global as well as domestic inflation, and consistent FII selling.
It also fanned concerns that these factors may slow down the pace of growth in the domestic economy.
However, markets found comfort from the outcome of state elections where the incumbent government won in four out of five states.
Consequently, while the S&P BSE Sensex managed to close the quarter marginally up by 0.54%, S&P BSE Midcap Index and S&P BSE Small Cap Index fell by 3.45% and 4.22%, respectively.
FIIs were net sellers in Indian equities to the tune of $14.59 billion in the March quarter, which was sharply higher than the net outflow of USD 5.12 billion recorded in the previous quarter. FIIs were net sellers in all three months of the quarter.
The report also showed that the assets of other regionally diversified equity funds and ETFs dropped during the quarter ended March 2022 by 8%, from $9.90 trillion in the previous quarter to $9.1 trillion. Other regionally diversified equity funds and ETFs include Asia/Asia-Pacific funds, emerging-markets funds, and global funds. These are foreign funds that have a partial allocation to Indian equities.