India-dedicated fund outflows hit largest since June 2022: Elara Capital

Retail flows from Japan to India turn negative on a four-week basis

The recent global fund flow data suggests that one big cycle of foreign fund allocation into India may have come to an end and the trend could remain soft for a longer time, according to a report by Elara Capital.

 

The note said last week's outflow of $302 million from India's dedicated funds is the largest since June 2022. The total outflow, including those of India-dedicated funds and funds that invest in India as a part of their emerging market (EM) allocations, from India of $569 million is the largest since March 2022.

 

The report further said that, on a rolling four-week basis, the retail flows from Japan into India are finally turning negative.

"The last time it turned negative was in January 2018. In this cycle since November 2022, we saw inflows of $8.6 billion from Japanese retail funds and $2.1 billion from institutional funds. Retail flows are generally very sticky on either side, and we are seeing flows from that segment turning red. The yen unwind trade is only visible in India," the note said.

 

Sunil Jain, vice president of Elara Capital, said the data signifies that global fund managers' preference for India is declining.

 

"In the past, it has taken a long time to come back. So, the best of global allocation to India is over and it will see a cool-off period for some months,” said Jain.

 

The note said investors were getting euphoric about the US markets after the recent election results, and US funds got an inflow of $110 billion in just three weeks. Most of the inflows into US funds are moving out from China, India, Taiwan, and South Korea, with most currencies also taking a beating against the dollar.

 

"China took the first leg, and now the money is moving to the United States across emerging markets. There is a risk to the environment for emerging markets. With Donald Trump's victory, asset allocators might feel that money is safer in the US than elsewhere. It is not that the outflows will continue, but the incremental inflows won't be there," said Jain.