Back$2.2 bn net outflow in India-focused ETFs, offshore funds: Report
Equity funds in the category saw net outflow of $1 billion, and exchange traded funds of $1.2 billion
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After receiving net inflows for five straight quarters, India-focused offshore funds and exchange-traded funds (ETFs) witnessed net outflows of around $2.2 billion during the quarter ended September 2015. This was in stark contrast to the preceding two quarters of 2015, when the funds received net inflows of $5.6 billion (during the quarter ended March 2015) and $1.7 billion (the quarter ended June 2015). Over a one-year period ending September 2015, India-focused offshore funds and ETFs received a net inflow of $7 billion, after accounting for the net outflow they witnessed in the third quarter of 2015.
Net outflows from India-focused offshore funds and ETFs during the quarter ended September 2015 marked the reversal in the trend, which arose after the general elections in May 2014 resulted in the formation of a stable government. The post-election euphoria, coupled with signs of improving macro-economy, boosted investor sentiment and resulted in foreign institutional investors (FIIs) pumping money into Indian equities, said a report by Morningstar, Inc. titled Offshore fund spy: Quarter ended September 2015.
Though the initial inflows were primarily into India-focused ETFs, indicating a flow of predominantly short-term money, the flows into India-dedicated offshore mutual funds (generally considered to be long-term) gathered pace later as foreign investors grew optimistic among about the prospects of Indian equities under a pro-growth, pro-reform government. Having said this, in the previous quarter (June 2015), net inflows into India-dedicated offshore mutual funds were once again outpaced by the net inflows into India-focused ETFs.
But the scenario of the September quarter is a rather isolated one. Of the total net outflow of $2.2 billion, India-focused offshore equity funds witnessed a net outflow of $1 billion, whereas India-focused ETFs registered a net outflow of about $1.2 billion. The outflows from India-focused ETFs were higher largely because in July, they witnessed net outflows of $0.1 billion versus the net inflow of $0.1 billion received by India-focused offshore equity funds. Interestingly, in the last two months of the quarter (August and September), both categories registered almost the same net outflow of around $1.1 billion.
Assets of India-focused offshore equity funds and ETFs declined sharply during the quarter to about $43 billion, from $47.9 billion in June 2015. While ETFs made up about $10.2 billion of these (versus $12.3 billion in June 2015), India-focused offshore funds accounted for $32.8 billion (versus $35.6 billion in June 2015).
The current total assets of India-focused offshore equity mutual funds and ETFs are down 23% from a peak of $55.8 billion in 2010.
FIIs turn net sellers
Domestic stock markets traded under pressure during the quarter ended September 2015 on the back of intense volatility in the global markets. The S&P BSE Sensex index fell by 5.85% during the quarter, as against a loss of 0.17% posted in the quarter ended June 2015. The domestic markets started the quarter on a weak note following a collapse in global commodity prices and a sharp downtrend in Chinese stock markets.
Positive first-quarter results for 2015-16, which showed an encouraging trend of improving margins and government reforms in public sector banks space, led to intermittent recovery. But concerns about Chinese yuan devaluation, coupled with continued global growth worries ahead of the US Federal Reserve policy decision, weighed on the domestic stock markets and led to quarterly losses.
Edited excerpts from Morningstar, Inc. report titled Offshore fund spy: Quarter ended September 2015.
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