Hopes of offshore India-centric fund inflows heighten in 2013

Marketmen more optimistic as economic and corporate earnings prospects improving much higher

There is hope for Finance Minister P Chidambaram, who is readying to embark on a week-long global tour to woo foreign investors, to attract more money into the country’s equities.

Assets under management (AUMs) of offshore India-focused equity schemes and exchange traded funds (ETFs) in December 2012, when the Sensex was hovering just below 20,000, were almost 34% or $ 19 billion lower than what they were in the same month of 2010 when the index was at around the same level.

Optimists said the data suggests there is room for further inflows into these funds, which would in turn find its way into Indian stocks, as the government aims at attracting more foreign investments.

AUMs of offshore India-focused equity funds and ETFs were at about $37 billion as on Dec 31, 2012 compared with $ 56 billion in 2010, according to fund tracker Morningstar. “India-focused funds could see inflows this year as investors will now start focusing on countries which will outperform others,” said the head of institutional sales of a foreign broking firm  

Foreign institutional investors (FII) have bought local equities worth $2.4 billion in January so far after pumping almost $25 billion in 2012 aided by an easy monetary policy adopted by the US Federal Reserve. The inflows last year were led by emerging market and Asia-centric funds, which invest in India as part of the overall regional investments, said Dhruva Raj Chatterjee, senior research analyst, Morningstar India.

The Sensex was around the 20,000-mark in both in December 2010 and 2012 but what makes market participants more optimistic this time is that the confidence of the economic and corporate earnings prospects improving is much higher now. Optimists believe these factors could drive more flows into offshore India-focused funds this year after seeing $ 1.8 billion of outflows in 2011. Flows in or out of such funds are a stronger indicator of foreign investor sentiment on India because money usually flows into these funds only when the undertone is positive. 

“The finance minister’s tour to meet investors is certainly being viewed as a serious attempt to attract more flows. This could have the desired effect but the real impact will be seen only in the medium to long term,” said Nimal Jain, chairman of India Infoline
Sceptics believe the possibility of FII pouring money into India this year like the previous year appears to be bleak.

"It may be too much to expect huge inflows into Indian stocks in 2013 after the 25% returns in 2012 though sentiment has improved. Any indications from the US Fed that it has gone a bit too far in monetary easing would be enough for investors sitting on profits to square off their positions," said U R Bhat, managing director, Dalton Capital India.

Offshore India-centric funds witnessed outflows worth $ 25 billion in 2011 after the Sensex returned almost 20% in 2010.