India remains FIIs' top pick, $2.87 billion pumped in Jan

India-focused funds see inflows of $1.7 billion; India gains at the expense of Russia and Brazil

India continues to be a preferred market for foreign investors. Listed India-focused funds saw record inflows of $1.7 billion in January this year, while most other emerging markets (EMs) saw redemptions to the tune of $3 billion. Foreign institutional investors (FIIs) pumped in $2.87 billion into Indian equities in January, most of this coming from listed funds.

In February so far, FIIs have remained net sellers to the tune of $348 million. Kotak Institutional Equities has a foreign fund tracker, which gives comprehensive view on fund flows of listed funds (passive exchange traded funds, or ETFs, and active non-ETFs) into India and other emerging markets. The tracker intends to monitor both passive and active fund flows to get a sense of intent and direction of foreign investors.

Listed funds account for a large part of FII activity in India, claim experts. According to Kotak, net inflows into India amounted to $1.3 billion with active and passive channels attracting capital in January. India-focused active funds saw inflows worth $800 million while their passive counterparts roped in 880 million during the period. India continues to be an outlier as most other emerging markets have seen outflows during the month. Funds benchmarked against the MSCI EM Index pulled out $2.5 billion in January. Equity strategists believe India and China are benefiting at the expense of other markets such as Brazil and Russia.

Fund flows into ETFs have remained strong in 2014. nearly $150 billion went into US equity ETFs in 2014. Deutsche Bank Research says: “Fund flows to developed country equity and bond funds did much better than those to emerging markets in 2014; the trend seems to have extended into 2015. Importantly, the increase in the stock of global financial assets has not helped the volume of turnover in equity and bond markets, which remain below the 2011 peak.”