Emerging mkt flows in Feb 2025: India faces outflows, China sees inflows

February 2025 witnessed a mixed trend in global fund flows, with listed funds experiencing $1.5 billion of outflows during the month. A significant factor driving these outflows was the non-ETF (Exchange-Traded Fund) segment, which saw a total of US$1.9 billion in outflows. However, these outflows were partially offset by ETF inflows of US$461 million, according to data analysed by Kotak Institutional Securities. 

 

India-dedicated funds, in particular, faced notable challenges during February, registering outflows of $1.6 billion. This was a combination of $361 million in ETF outflows and a substantial $1.2 billion in non-ETF outflows. This decline in India-focused investments contrasts with the performance of several other emerging market (EM) funds, which experienced positive inflows in the same period.

 

 

India-dedicated funds saw outflows of U$1.6 bn, whereas GEM funds saw inflows of US$144 mn

Monthly India total, ETF and non-ETF flows broken down into different geo-focus funds (US$ bn) 

 

While India saw outflows, other emerging markets like China, Brazil, and Taiwan performed better. China led the charge, witnessing inflows of US$1.2 billion, followed by Brazil with US$230 million, and Taiwan with $112 million in inflows. These contrasting trends underscore a divergence in investor sentiment toward emerging markets, with India facing challenges compared to its peers.

 

Country Allocations: India’s Declining Share

Looking at country allocations, both Asia ex-Japan and GEM (Global Emerging Markets) funds showed reduced exposure to India in February. Asia ex-Japan fund allocations to India fell to 14.7% in February, down from 16.3% in January. Similarly, GEM funds reduced their India allocations to 17.2%, a decline from 18.8% in the previous month. Notably, non-ETF funds also reduced their allocations to India, with Asia ex-Japan non-ETFs cutting their holdings to 16.5% from 18.3%, and GEM non-ETFs reducing their India exposure to 15.3% from 16.9%.

 

Despite these declines, China remained a dominant destination for investments. Allocations to China and India collectively constituted 40% of the average Asia ex-Japan fund portfolio, reflecting the continuing importance of both markets in regional allocations.

 

The Divergence in FPI and EPFR Data

The analysis of foreign fund flows, as tracked by KIE’s foreign fund flow tracker, highlights key differences between EPFR-reported fund flows and FPI (Foreign Portfolio Investment) flows, as reported by NSDL. While EPFR data primarily captures investments in mutual funds, ETFs, closed-end funds, and insurance-linked funds, NSDL tracks a broader spectrum, including investments from hedge funds, proprietary desks, and sovereign wealth funds. This distinction is essential to understanding the full scope of investment activity in India and other emerging markets.  FPIs sold across all sectors except IT and telecommunication services 

 

The outflows from India-focused funds in February 2025 signal caution among investors, possibly due to concerns over market conditions, regulatory developments, or economic uncertainties. Conversely, the positive inflows into markets like China, Brazil, and Taiwan suggest that investors are looking for growth opportunities in other emerging markets.

 

Moving forward, market participants will closely monitor global economic trends, central bank policies, and regional developments, as these will likely influence the shifting patterns of fund flows across emerging markets. Moreover, with a backdrop of rising interest rates and economic pressures, investors’ appetite for riskier assets, including those in India, could face further headwinds. 

Disclosure: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt Ltd