India-dedicated global funds: The secret sauce for domestic equities

Consistent main course with $8.1 billion served up in Q1 2024

Even as foreign portfolio investor (FPI) investments into domestic equities have ebbed and flowed this year, India-dedicated global funds have proved to be a steady source of capital.

During the first three months of the calendar year 2024, they have helped channel $8.1 billion into the stock markets. Of this, $4.4 billion has come from exchange-traded funds (ETFs) and $3.7 billion from non-ETFs, according to an analysis done by Kotak Institutional Equities of global funds tracked by EPFR.

In March, India-dedicated funds contributed $2.3 billion of $4.2 billion in FPI flows into domestic stocks.

Global emerging market (EM) funds saw outflows of $144 million, while other funds saw outflows of $231 million.

India-dedicated funds are overseas investment vehicles that are used by global investors to seek exposure to domestic stocks, while global EM funds are funds that seek exposure to the EM basket, of which India is a part.

They can either be ETFs that track indices such as the MSCI (Morgan Stanley Capital International) India, FTSE (Financial Times Stock Exchange) India, or MSCI EM. They can even have active funds (non-ETFs) that invest in line with the fund manager’s discretion, such as the GQG Partners EM Equity Fund.

At the end of March, the assets under management (AUM) of India-dedicated funds were about $77 billion, up from $38 billion a year ago.

The AUM of global EM funds is much higher at $165 billion as they track stocks from a much wider universe consisting mainly of stocks listed in China, Taiwan, India, South Korea, Brazil, and several other markets.

Experts say that given the poor performance of Chinese equities, global investors’ flows into India-dedicated funds have increased. This has led to a strong outperformance of the domestic markets.