India-focused offshore funds, ETFs inflow drop 9% to $803 mn in Q4

India-focused offshore funds and exchange-traded funds (ETFs) witnessed a 9 per cent quarter-on-quarter decline in inflows to USD 803 million in the January-March period, mainly due to an uncertain global economic environment, according to a Morningstar report.

However, this was the third consecutive quarter of inflow. Before that, such funds saw 17 quarters of net outflows in a row.

India-focused offshore funds and ETFs are some of the prominent investment vehicles through which foreign investors invest in the Indian equity market.

Going by the report, the category received a net inflow of USD 803 million during the January-March quarter of 2023, which was slightly lower than the net inflow of USD 884 million during the quarter ended December 2022.

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

Going ahead, investors would also look for cues from the scenario that unfolds on the global inflation and economic growth front and the US Federal Reserve's decision on interest rates, the report pointed out.

Moreover, the valuation of the Indian markets, growth in the domestic economy, and currency movement would also be major drivers that would determine the flow trend in the India-focused offshore fund and ETF category, it added.

During the three months ended March 2023, the India-focused offshore fund segment witnessed net inflows of USD 314 million, compared to the net inflows of USD 384 million it received in the previous quarter. This was the third quarterly net inflow for the segment in a row. Before that, over the last 17 quarters, starting with the quarter ended June 2018, it witnessed net outflows.

The recent inflow came despite challenging times and an uncertain global economic environment. Although, the Indian economy and markets have been resilient compared to other economies. Moreover, there is a positive economic growth outlook for India, which has attracted foreign investors looking to invest from a long-term perspective, toward Indian markets, the report mentioned.

In addition, India-focused offshore ETFs also received net inflows, and the quantum was higher than the India-focused offshore fund segment. It received net inflows of USD 489 million, which was marginally lower than the net inflow of USD 500 million recorded in the preceding quarter.

Through the quarter ended March 2023, their asset base declined by 1 per cent to USD 42.4 billion from USD 42.9 billion recorded in the previous quarter.

Of the overall current asset base of USD 42.4 billion, India-focused offshore ETFs accounted for USD 9.69 billion, whereas India-focused offshore funds accounted for USD 32.74 billion.

Meanwhile, the Indian equity markets moved southwards during the quarter ended March 2023 on weak global signals, fuelled by worries about the Federal Reserve's continued aggressive policy leading to rate hikes, and its effect on global economic growth.

Through the quarter, S&P BSE Sensex Index fell by 3.04 per cent, S&P BSE Midcap Index was down by 4.93 per cent and S&P BSE Small Cap Index declined by 6.81 per cent.