HNIs baulk at India story, look abroad

Set sights on more stable markets such as the US, Japan and Europe for equity investment opportunities

The affluent Indian investor seems a little less convinced about the India story, for now. These investors are increasingly looking at equity investment opportunities in more stable markets such as America, Japan and even Europe.

According to data on the Association of Mutual Funds in India (Amfi) website, the number of folios held by high net worth investors (HNIs) under the offshore funds category rose by 15 per cent in the six-month period ended September. This is in contrast to the 11 per cent drop in folios in the previous six months ending March.

Offshore funds are feeder funds which invest in equity funds across geographies.

“This is because of HNIs’ increasing disenchantment with Indian investment conditions. Money is being sent outside through the LRS route, as investors want to go slow on India in the short term,” said Sunil Mishra, chief executive officer, Karvy Private Wealth. LRS refers to the Liberalised Remittance Route, through which investors can remit up to $75,000 in a financial year.

Also, the rupee stabilising at current levels of 60-62 to the dollar was another incentive for investors to diversify outside, analysts said.

Equity markets, while having risen about two per cent between March and September, had been plagued with extreme volatility on the depreciating rupee, weakening macro economic parameters and fears of withdrawal of the $85-billion bond-buying programme of the US. While US equities have been the favourite among fund managers for long, Europe and even Japan are emerging as the new investor favourites, based on the turnaround in their economies.

“The US markets have hit an all-time high but there are still downside risks in terms of the tapering of the QE3 (the central bank’s bond buying programme) and the jobs data, which still looks a little unstable. This is the reason why Europe looks much better placed than the US. The manufacturing data from the UK, France and Germany has been encouraging and markets feel there is a lot of value that can be unlocked,” said Ankit Swaika, senior vice-president and head-investment advisory and research, Religare Macquarie Wealth Management. Experts suggest the trend is likely to continue for some time.

Recently, JP Morgan and Religare Invesco filed for Europe-focused equity offshore funds, the Europe Dynamic Fund and Religare Invesco Pan European Equity Fund. Fund managers said it was largely Indian equity money that was being channelled into such funds. They added HNIs would continue to avoid Indian equity until the elections.

Overall, the total number of folios held by HNIs as of September was a little over a million, up eight per cent from March. Most of the rise was seen in the liquid and money market funds, where the folios rose 51 per cent. The gilt fund category, which increased 73.5 per cent in the six-month period ending March, fell 8.4 per cent between March and September. This was due to the Reserve Bank’s liquidity tightening measures, which caused a spike in yields.

However, investor interest in Indian debt remains intact, fund managers said. “With the kind of volatility seen in equities in the last few years, investors want to preserve capital. Fixed income is the best available investment option for that, as the returns there have been very good,” said Raghavendra Nath, managing director, Ladderup Corporate Advisory.