PremiumThe future trend of flows in the India-focused offshore fund and ETF category would revolve around how the country fares against comparable economies on growth prospects from long-term perspective.
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NEW DELHI: India-focused offshore funds and exchange-traded funds (ETFs), put together, recorded net outflows of $1.59 billion in the three months through June. This was higher than net outflows worth $1.28 billion during the quarter ended 31 March, Morningstar India said in a report.
This is was the 17th straight quarter of outflows from India-focused offshore funds and ETFs. The intensity had hit a peak in the March 2020 quarter, with almost $5 billion leaving the coffers.
An offshore India fund is not domiciled in India but invests primarily in Indian equity markets.
A host of weak cues emanating from both global as well as domestic markets has kept equity markets and investors on their toes. While the stress on equity markets has been apparent since the start of the year, it magnified during the quarter ended June 2022.
The markets largely continued to be driven by geopolitical tensions between Russia and Ukraine, rate hikes by the US Federal Reserve, rising covid cases in some parts of the world, volatile crude prices, and high global as well as domestic inflation.
Consequently, foreign institutional investors (FIIs) net sold assets worth $13.85 billion during the June quarter, having liquidated $14.59 billion in assets in the previous quarter.
In terms of specific categories, during the June quarter, India-focused offshore funds witnessed net outflows of $588 million, which was lower than net outflows of $800 million recorded during the quarter ended March. So far in 2022, the segment has witnessed net outflows worth $1.38 billion.
India-focused offshore ETF segment also saw net outflows during the quarter. In fact, the quantum of net outflows was higher than that witnessed by India-focused offshore funds. Through the quarter, the ETF segment witnessed an exodus of almost $1.0 billion, which was higher than net outflows of $474.9 million during the quarter ended March.
Due to the net outflows and correction in equity markets, the asset base of India-focused offshore funds and ETFs category also shrunk during the quarter.
Sequentially, assets fell by 18% during the quarter ended June to $38.1 billion from $46.7 billion in the previous quarter.
The percentage allocation of these funds in total offshore fund assets of Indian equity markets remained unchanged quarter-on-quarter at 14%.
Notably, 56 funds of the total 256 covered under the report received net inflows amounting to $229 million. The rest witnessed net outflows amounting to $1.83 billion.
“The future trend of flows in the India-focused offshore fund and ETF category would revolve around how the country fares against comparable economies on the growth prospects from long-term perspective. Some of the factors would be closely watched by foreign investors to get a clue, such as how the scenario unfolds on the global inflation and economic growth front, and subsequently, the Fed’s decision to hike interest rates further," Morningstar India said in a report.