Foreign funds tighten India tap

Foreign funds that have historically been the drivers of a bull run in the Indian equity market have remained largely inactive in the recent past.

A study by Kotak Institutional Equities says India-focused funds have increased cash holdings and their allocation here is below the peak. Indian benchmark indices have been one of the worst performers among leading equity indices in the current calendar year.

“In the last four weeks, country flows into India have remained tepid, as ETFs (exchange traded funds), the larger contributor to net Indian inflows in the last 12 months, remained relatively inactive,” says the report. Indian allocations by Asia-focused (ex-Japan) and BRIC-focused funds are heading lower, as cash balances increase in these funds on a month-on-month basis, it adds.

More important, according to the report, two of the largest funds in the India-dedicated fund universe saw outflows in the past four weeks, adding to their outflows witnessed in the past 12 weeks. HSBC GIF India Equity Fund, with total assets under management (AUM) of $5.4 billion has seen $62 million pulled out in the past four weeks. Similarly, Wisdom Tree India Earnings Fund, with AUM of $1.3 billion, reported outflows of $42 million in the same period.

Interestingly, two of the top three outflows were seen in ETF funds. Apart from Wisdom Tree, iPath MSCI India Index ETN also featured in the top three with an outflow of $74 million (nine per cent of its AUM) in the past 12 weeks. On the back of bearishness towards emerging markets, the net asset values for the largest emerging market funds were down five to eight per cent on a month-on-month basis, says the report.

The rally last year was largely attributed to the massive money pumped in by some of the largest ETFs of the world into the Indian market. The reversal in the past couple of months have also led to the Indian indices reporting the worst performance among some performance among 10 of the leading equity indices of the world.

According to data available on Bloomberg, the Indian 30-share Sensex is down more than 10 per cent in the current calendar year. This is followed by Japan’s Nikkei and Brazil’s Bovespa that lost 8.30 per cent and 7.16 per cent, respectively. In a similar period, Dow Jones is up nearly five per cent, while South Korea’s Kospi and Germany’s DAX have both gained around three per cent each.

On a country level, South Korea and Taiwan have overshadowed India in the past four weeks, according to the Kotak study. India’s allocations (are) down to a 21-month low of 10.8 per cent from the highs of 12.8 per cent in July 2010, it goes on to add. “On a month-on-month basis, South Korea and Taiwan have eaten into India’s pie within the universe of Asia ex-Japan funds, while BRIC funds have increased their Russian allocations by around two per cent in the last three months,” says the report.

As on April 30, India accounted for 14.6 per cent of the funds allocated for BRIC countries, lowest among the four nations. India’s share is also the lowest among Asia ex-Japan funds. The report also highlights the fact that Thailand and Indonesia have seen strong inflows on a one-month and a three-month basis, if one considers the flows in percentage terms.