India-focussed offshore funds, ETFs see $5-bn outflow in March quarter

India-focussed offshore funds and exchange-traded funds (ETFs) witnessed a net outflow of $5 billion in three months ended March 2020, making it the eighth consecutive quarter of withdrawal amid the pandemic, according to a Morningstar report.

In comparison, a net outflow of $2.1 billion was witnessed during the quarter ended December. Since the quarter ended June 2018, the category has lost $16.3 billion of net assets.

The two are some of the eminent investment vehicles through which foreign investors invest in Indian equity markets.

Of the total quarterly net outflow of $5 billion, India-focussed offshore ETFs registered a net withdrawal of $3.6 billion, while the remaining $1.4 billion was withdrawn by India-focussed offshore funds, the report noted.

The net outflows for the category in the first three months of 2020 was close to the amount of net outflows the category witnessed in the calendar year 2018 ($5.3 billion) and 2019 ($5.9 billion).

Flows into offshore funds are generally considered to be long-term in nature, whereas flows into offshore ETFs indicate predominantly short-term money.

"Higher net outflows from India-focussed offshore funds indicate that foreign investors with long-term investment horizons have been adopting a cautious stance towards India. 

Though this is concerning, but not entirely unexpected, given the country's current economic landscape and uncertainty over the impact of the coronavirus pandemic on the global as well as domestic economy," the report said.