BackETF investors from US bet big on India
Enquiries from NRIs living in the US looking to invest in India are growing by almost 15-20% month-on-monthAccording to ETF Database, there are 12 India-focused ETFs listed in the US with an AUM of $7.26 billion as of 26 January
PremiumIndia is fast becoming a preferred destination for US-based Exchange Traded Fund (ETF) investors aiming to shift a part of their investments away from China even as they seek better returns against the backdrop of low interest rates back home.
Non-resident Indians (NRIs) based out of the US have traditionally been investing here because of their familiarity with the country. “Enquiries from NRIs living in the US looking to invest in India are growing by almost 15-20% month-on-month," said Sitashwa Srivastava, CEO of Stockal, a fintech that enables global investing for Indians.
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However, US-based non-Indian investors don’t have an option to directly invest here. “That is why they are forced to go through the funds that are available in the local market," said Viram Shah, co-founder and CEO, Vested Finance, a global investing platform.
According to ETF Database, there are 12 India-focused ETFs listed in the US with assets under management (AUM) of $7.26 billion as of 26 January. The largest ETF is the iShares MSCI India ETF (INDA) with an AUM of $5.13 billion. It was set up in 2012 and has grown its AUM by almost 1,000 times since then, indicating a strong interest in India investments, Shah said.
“Around 16-20% of an international investor’s portfolio is diversified outside their country. That’s where the Indian story fits in. Some of them opt to do it by taking emerging market exposure as a whole versus investing in a specific country and in this they are looking at India ETFs," he said.
Institutional investors have also started focusing on India as a specific market in a big way. This is because of a combination of factors such as a weakening dollar, investors being hungry for returns, and rising commodity prices, according to experts.
“For a global institutional investor, India earlier formed a part of the EM bucket. Over the last 2-3 years, especially 2020, investments started moving away from China. In terms of portfolio investing, India is winning now, as other markets are too small," said Vikas Gupta, founder, Omniscience Capital, a Sebi-registered investment adviser.
The increased focus is also reflected in the rising clout of Indian stocks in the MSCI Emerging Markets Index. India’s weightage in the index increased to 9.25% at the end of December 2020 against 7.6% in April 2020. China continued to have the biggest weight at 39.09% followed by South Korea at 13.46% and Taiwan (12.75%).
According to a Morningstar report in November, India-focused offshore funds and ETFs had witnessed $1.8 billion outflows in the September quarter of 2020, logging the 10th consecutive quarter of withdrawal. However, experts say that the trend seemed to have reversed in November and December, and inflows will accelerate further with positive announcements on the reforms front in the forthcoming Union Budget.
“The US-based investors are focused on the India growth story, which is structural in nature. It is based on demographics, financial inclusion and smartphone penetration. As there are worries that the US dollar may continue falling, investors are allocating more to EMs and India is receiving more than its fair share of that allocation," said Amit Anand, co-founder, NextFins, which in October 2020 had launched Nifty India Financials ETF (INDF), the first US-based ETF to focus exclusively on India’s financials sector. The fund as of now has an AUM of around $3 million. Without divulging any details, Anand said NextFins has four more funds in the pipeline.
Financials also hold the highest weightage in MSCI India Index at 27.05%, followed by information technology (17.33%) and energy (12.8%).
According to Srivastava, the other sector where global investors are bullish on is manufacturing because of the Indian government’s increased focus.
Apart from stocks, US-based investors are also interested in dollar-denominated Indian bonds. “The US fixed-income products and savings accounts might give negative returns in the future. There is a growing demand for fixed-income products available outside of the US, including dollar-denominated Indian bonds, which also takes away the currency risk," Srivastava said.
However, in terms of performance, the US may continue to enjoy an advantage over India due to pricey valuations of Indian stocks and expected devaluation in the rupee.
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