India-focused funds face redemption pressure

After a 42 per cent rise in inflows last year, European funds see year-to-date outflows at 16 per cent.

India-focused offshore funds saw an erosion of 5-10 per cent of their assets due to high redemptions in the April-June quarter.

The largest offshore India fund, HSBC GIF Indian Equity, registered the biggest net outflow – 165 million euros (Rs 1,000 crore) – during the period, according to a report by Morningstar India.
 

CHANGING TRENDS Net assets of largest offshore Indian equity funds in June
Fund	2010	2011	% change
Europe-based India funds (euro mn)
HSBC GIF Indian Equity	5,310	3,703	-30.26
Aberdeen Global Indian Equity Fund	2,973	3,259	9.62
JP Morgan Funds -JF India Fund	2,153	1,901	-11.70
Lyxor ETF MSCI_India	1,388	1,332	-4.03
Franklin India	824	1,239	50.36
BlackRock Glb India Fund	599	704	17.53
Japan-based India funds (¥ bn)
PCA India Equity Open	107	104	-2.80
HSBC India Open	113	102	-9.73
PCA India Infra Open	93	67	-27.96
AMundi Resona India Fund	76	60	-21.05
Nomura India Equity	76	58	-23.68
BlackRock India Equity Fund	46	35	-23.91
Source : Morningstar India

“After redeeming in the first quarter, European investors poured money into emerging markets funds during the second quarter of 2011. However, India was among the bottom-performing markets, which would have contributed to the outflows,” explained Dhruva Chatterji, senior research analyst at Morningstar India.

The Sensex fell almost 600 points or 3.08 per cent in the first quarter of 2011. The MSCI India dollar index fell more than four per cent.

For European-based funds, there has been a sharp reversal in fortunes, from a rise in inflows by 42 per cent, assets have fallen 16 per cent, since January.

Offshore funds in Europe registered a net outflow of 346 euros million (Rs 2,190 crore), while those based in Japan witnessed a net outflow of ¥30.8 billion (Rs 1,739 crore) in this quarter. Even US-based exchange traded funds continued to see outflows.

Arindam Ghosh, chief executive officer of Mirae Asset Global Investments (India), said: “A combination of factors have impacted the inflows. Since the Indian economy has several headwinds and markets have underperformed, foreign investors are underweight on India.”

Even Japan-based funds have aggressively withdrawn money, more than other countries. Their net assets fell 10 per cent during April-June. In the January-March quarter, the fall was more subdued at three per cent. Experts said after the March earthquake, many Japanese investors withdrew from these funds to invest in their own country because of higher rates of return.

Among Japanese funds, PCA India Infra Open fund was the worst hit, with an erosion of Rs 354.61 crore (¥6.28 billion) from its assets in the June quarter. The fund is continuously bleeding for the past year, during which it lost Rs 1,268.27 crore (¥22.46 billion). T&D India Mid-Small Equity Fund managed to have the highest net inflow of Rs 63.8 crore (¥1.13 billion).

Chatterji said assets of these Japanese funds have been on a decline since the beginning of 2010. Japanese investors in general pulled out money from emerging markets equity funds and poured money into Real Estate Investment Trusts and high-yield bond funds during the quarter.

Among individual funds, besides HSBC, GIF Indian Equity saw a fifth consecutive quarterly outflow for this fund, bringing the year-to-date outflow to 567 million euros (Rs 3,588.8 crore), Lyxor ETF MSCI India lost 66 million euros (Rs 417.74 crore or), BlackRock Glb India Fund 59 million euros (Rs 373.4 crore) and JP Morgan Funds - JF India Fund 51 million euros (Rs 322.8 crore) (See table).

“Investors are extremely bullish on China and they are building positions there. Moreover, investors are also investing in structured bonds and high-yield earning bonds.”An offshore India fund is one that is not domiciled in India but invests in the Indian markets,” added Ghosh.