India exchange-traded funds miss their cue as iShares steps offstage

iShares MSCI India ETF — the most popular exchange-traded fund (ETF) for India exposure — has led the latest retreat by India-focused funds. Investors have pulled out more than half a billion dollars from this US-listed ETF, which manages close to $10 billion. Meanwhile, WisdomTree India Earnings Fund and Amundi MSCI India II saw outflows of $225 million and $103 million between July 30 and August 20, according to data compiled by Elara Capital.

 

Indian markets are facing their sharpest wave of redemptions in eight months, even as Chinese equities attract fresh inflows.

 

According to Elara Capital, India-focused funds saw $1.8 billion in outflows over the past four weeks, the heaviest since January. In contrast, China funds drew $3 billion and Hong Kong funds $4.5 billion.

 

The brokerage said the reversal came in the wake of Donald Trump’s US presidential victory in October, which has shifted investor sentiment. Since then, India has recorded $3.7 billion in outflows, while China has pulled in $5.4 billion.

 

Elara Capital pointed out that the recent shift contrasts with flows between March and September 2024, when India drew $29 billion in cumulative inflows, while China lost $26 billion.

 

“Among all the emerging markets (EMs), India flows remain the weakest. Of the recent $1.8 billion India redemptions, $1 billion came from ETFs and $770 million from active funds. Inflows after the Trump tariff panic in April were concentrated in ETFs, while long-only funds have been under steady redemption pressure since October 2024,” the Elara Capital note said.

 

The selling by global funds has been offset by strong buying from domestic investors, with mutual funds pumping in over ₹1 trillion since July.

 

Last week, Nomura said India has been slipping in the EM basket. Its analysis of 45 large EM funds showed relative allocations to India dropped 110 basis points (bps) month-on-month in July, with 41 funds trimming exposure.

 

India is now the most underweight market in EM portfolios, with allocations standing at 2.9 percentage points below the benchmark MSCI EM index.

 

By contrast, allocations to Hong Kong, China, and South Korea rose by 80 bps, 70 bps, and 40 bps in July.