India dedicated flows slow to 12-week low, led by outflows from ETFs

India dedicated flows finally slowdown to 12-week low of $153mn this week after average weekly inflows of $1bn post-election results.

The recent surge into India-focused foreign investments appears to be taking a breather, with dedicated India funds experiencing their slowest week in 12 weeks.

Dedicated India funds are a type of mutual fund or Exchange Traded Fund (ETF) that specifically invests in Indian companies or the Indian stock market. These funds dedicate a significant portion, if not all, of their holdings to Indian assets. This allows investors to gain exposure to the Indian market without having to pick individual stocks or manage their own portfolio.

A report by Elara Capital highlights that weekly inflows into India dedicated funds have dropped to $153 million, significantly lower than the average of $1 billion seen since India's election results.  This slowdown is primarily due to outflows of $285 million from Exchange Traded Funds (ETFs) targeting the Indian market. However, long-only investors remain enthusiastic, with consistent weekly inflows of $400 million over the past two months.

Mid and small-cap focused funds haven't seen inflows since October 2023.

The slowdown in India-dedicated funds have come on the back of redemption from Ireland funds totalling $390 million. Inflows from US investors also slowed to $93 million compared to the post-election average of $270 million per week.

Notably, Japanese investors continue to show strong interest, contributing $200 million this week.

Among emerging market sector funds (dedicated sectoral funds), technology funds have witnessed the highest inflow rate since January 2024. Consumer goods funds are experiencing a slower recovery in inflows over the past month. Financial and healthcare sector funds have also seen a positive uptick in inflows recently.

"Inflows into Global Bonds expanded to the highest level since February 2021 of $19 billion. This is largely on back of strong inflows into DM Investment Grade bond funds of $14.8bn (largest since Jul’20). High Yield bond inflows remain in line with average," said Sunil Jain of Elara Capital.