Flows from offshore India funds, ETFs ebb

Inflows of $140 million in August lowest in 2017; China most preferred among Asia-Pacific and emerging markets funds

India-focused offshore funds and exchange-traded funds (ETFs) in August saw net inflows of $140 million, the lowest monthly inflow in 2017.
 
While India-focused offshore funds received net inflows of $179 million, offshore ETFs witnessed net outflows of $39 million.
 
The trend is consistent with the recent selling spree by foreign portfolio investors (FPIs). In August, FPIs sold Indian shares worth nearly $2 billion while the first half of September has seen selling of $300 million. In the year to date, FPIs have bought shares worth more than $6 billion.
 
“The good thing is that money is still flowing to India-focused offshore funds, which are more long-term in nature than India-focused offshore ETFs,” said a note put out by Morningstar India, a mutual fund tracker.
 
Over the past one year, these funds have increased exposure to sectors such as financial services, consumer cyclicals, and basic materials. Holdings in pharma and technology have been cut by 2.3 per cent and 1.7 per cent, respectively. “Their focus is on the uptick in economic activity and urban consumption demand. In fact, their investment pattern in sector allocation terms is not very different from that of domestic fund managers,” said Morningstar.
 
China has emerged as the most preferred investment destination for both Asia-Pacific and emerging markets funds, forming, on average, 27 per cent and 23 per cent in their respective portfolios, the report says.
 
For Asia-Pacific Funds, South Korea was the second-most preferred destination with a 12 per cent allocation, while India came third with an 11 per cent allocation.
 
For emerging markets funds, India was the fourth-preferred investment destination, with an allocation of 10.1 per cent. Taiwan was at number 2, while South Korea at 3.
 
Rising geopolitical tension mainly due to the stand-off between the US and North Korea has triggered a sell-off across global markets in recent weeks. Emerging markets are normally the worst-hit in such conditions because they are considered more prone to such risks. 
 
“Indian stock markets have done significantly better over the past few years. The global risk-aversion coupled with the rupee appreciation has given overseas investors a good opportunity to book profits. India has to perform significantly better to continue getting its share of foreign money,” said Morningstar.