India pie in global fund flow dips

Down to 22% this year from 48% in 2015

India’s share in overseas flows to emerging markets and emerging Asia (EMEA) has contracted in 2016.

The country accounted for only 22 per cent of the total fund inflows in the EMEA region this year. In comparison, its share was 48 per cent in 2015, 43 per cent in 2014 and 57 per cent in 2012, Bloomberg data showed.

Foreign portfolio investors (FPIs) have bought equities worth $6.9 billion in Indian markets in the year till date.

This reduction in India’s share of FPI inflows comes as global funds reduce their India weightage in favour of markets like South Korea and Taiwan. Also, India’s recent underperformance and expensive valuations have weakened its appeal.

The benchmark Sensex has yielded 5 per cent return in the year so far against a 9.3 per cent surge in the MSCI EM Asia index.

According to HSBC, overseas funds are increasing their participation in South Korea and Taiwan in order to have exposure to a US demand recovery. Overseas funds have so far purchased net equities worth $14.2 billion in Taiwan and $9.7 billion in South Korea.

“India slipped to fourth position, a level last seen in February 2012. In terms of absolute exposure, funds continued to reduce their holdings of Indian equities, though India still remained the consensus overweight trade in the region,” said Herald van der Linde, head of equity strategy for the Asia Pacific, HSBC.

A month-wise analysis of the data shows that the pace of FPI inflows has slowed down in the last three months amid concerns about an interest rate hike by the US and its presidential elections. In October, FPIs turned net sellers for the first time in eight months, when they sold equities worth $616 million.

“Although 2016 has been a positive year in terms of FPI inflows, the flows are not as good as they were in the last few years. Even in the near term, there might be nervousness among FPIs over the outcome of the US elections. However, from a long-term perspective, Indian markets are still positive,” said Rajat Rajgarhia, managing director, institutional equities, Motilal Oswal Securities. Not just India, inflows have been slowing down across the globe. In the EMEA universe, FPIs bought equities worth $300 million during October, the lowest in nearly six months. “Investor sentiment remains subdued amid uncertainty over the timing of a US rate hike,” der Linde added.

FPI inflows to India have spiked since 2013 when Indian equities scaled new heights on the hopes of a new government at the Centre. Since then India has been a relative outperformer. Even in 2015, when FPIs were net sellers in a majority of emerging markets, India witnessed inflows of $3.3 billion.