India-focused offshore funds, ETFs see $1.5 bn outflows in June quarter

India-focused offshore fund and ETF as a category continued to witness net outflows. During the quarter ended June, the category witnessed a net outflow of $1.5 billion, which was sharply higher than the net outflow of $376 million seen in the previous quarter. This was the thirteenth consecutive quarter of net outflows for the category.

India-focused offshore funds have seen net outflows for 13 straight quarters, amounting to $1.7 billion till the quarter ended June 2021. However, India-focused offshore ETFs saw inflows for the third straight quarter, with net inflows of $153 million during the quarter ended June, lower than that received in the previous two quarters.  

India-focused offshore funds and ETFs are some of the prominent investment vehicles through which foreign investors invest in Indian equity markets. Flows into India-focused offshore funds are generally considered to be long term in nature, whereas flows into India-focused offshore ETFs indicates predominantly short-term money.

Despite net outflows from the India-focused offshore fund and ETF category, its asset base swelled during the quarter, because of the continued rally in the domestic equity markets. Through the quarter, the assets of the category grew by 4.1 per cent to $46.3 billion from $44.5 billion recorded in the previous quarter.

The India-focused offshore funds and ETF category rose by 7.1 per cent during the quarter, thus marginally outperforming MSCI India USD Index, which returned 7 per cent.

During the quarter ended June 2021, all three market segments – large, mid- and small-cap – continued their upward march. Although the markets witnessed a broad-based rally during the quarter, mid and small-cap segments outperformed their large cap counterparts by a huge margin.

While S&P BSE Sensex surged 6 per cent during the quarter, S&P BSE Midcap and S&P BSE Smallcap indices registered a gain of 11.7 per cent and 22.2 per cent, respectively.

"The impact and spread of the second wave of Covid-19 largely dictated the direction of flows from overseas investors into the country's equity markets during the quarter ended June 2021. FIIs closely tracked the pandemic's development while making their investment decisions as lockdowns in various states created an environment of economic uncertainty," said Himanshu Srivastava, Associate Director, Morningstar Investment Adviser India. 

Flows Into Indian markets from funds with partial allocations surged during the quarter ended June 2021 by 6 per cent  to  $9.5 trillion from $9.03 trillion recorded in the previous quarter.

The value of investment into Indian equities in foreign funds rose to an estimated $278 billion during June 2021 quarter, compared with $259 billion recorded in the previous quarter, up by a healthy 8 per cent. While the emerging market funds were net buyers of Indian equities in the June quarter; global funds and Asia/Asia-Pacific funds were net sellers.