India-focused exchange funds major stock sellers in May

Long-only funds still upbeat on India, say market experts.

Global exchange-traded funds (ETFs) account for a large portion of foreign fund outflows from Indian stock markets in May, while long-only funds have largely held their positions, officials familiar with the matter have said.

In this month, foreign institutional investors (FIIs) net sold Indian shares worth $1.84 billion (Rs 8,488.40 crore) till May 25, data available on the Securities and Exchange Board of India (Sebi) website showed.

“Much of this is ETF-led selling. Long-only funds are still upbeat on India as growth here is much better,” said UR Bhat, managing director at Dalton Capital Advisors (India).

The stock market regulator does not give separate data on investments by ETFs.

ETFs are baskets of securities that are traded, like individual stocks, on exchanges. Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day like any stock. Most India-focused ETFs track the performance of Nifty, MSCI India or Sensex. When these indices fall, they have to reduce their exposure accordingly.

Long-only funds like mutual funds, insurance firms or pension funds tend to have a long-term view on the market.

“ETFs are withdrawing money this month because of fall in markets,” said Saurabh Mukherjea, equity head at the Indian unit of UK-based Execution Noble. “However, there is only a modest outflow from long-only funds,” he added.

At Wednesday’s close of 16,387.84, the Bombay Stock Exchange (BSE)’s benchmark Sensex has declined 6.67 per cent in this month, as investors moved away from risky assets like stocks due to uncertainty surrounding the debt crisis in Europe. On the other hand, till Tuesday, some bigger India-focused ETFs had lost more than 11 per cent of their value.

For example, values of WisdomTree India Earnings Fund and iPath MSCI India Index ETN, both listed on NYSE Arca, have fallen about 11.18 per cent and 12.69 per cent, respectively, this month till Tuesday, Bloomberg data show.

During the period, the value of iShares MSCI India fund, listed on the Singapore Exchange, has fallen 13.28 per cent. The portfolio value of all these three funds is over $700 million.

About 20 India-focused ETFs are listed on overseas stock exchanges. Out of this, five are listed in the US, while six are listed in France. The rest are listed in the UK, Hong Kong, Singapore, Canada, Israel and Luxembourg.