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Fund outflow from India-focussed offshore funds and ETFs narrowed to USD 1.8 billion

Fund outflow from India-focussed offshore funds and exchange-traded funds (ETFs) narrowed to USD 1.8 billion in July-September this year against the net withdrawal of USD 2.2 billion in the previous quarter, says a Morningstar report.

With this, the net outflow has reached USD 3.8 billion from such funds in the first nine months of the year (January-September).

Offshore India fund -- not domiciled in India -- receives flow from overseas investors and invests the money in Indian markets. Offshore funds, as well as ETFs, are a subset of the overall foreign portfolio investor (FPI) flows.

Of the total quarterly net outflows of USD 1.8 billion, India-focussed offshore funds registered net pullout of about USD 1.7 billion, and offshore ETFs saw the net withdrawal of USD 127 million, according to the report.

The net outflow dented the asset base of India-focussed offshore funds and ETFs. Their assets declined to USD 50.9 billion during the quarter ended September 2018 from USD 56.5 billion recorded in the previous quarter.

Flows into India-focussed offshore funds are generally considered to be long-term in nature, whereas flows into India-focussed offshore ETFs indicate predominantly short-term money.

"The higher net outflow from India-focussed offshore funds compared with India-focussed offshore ETFs over the past few quarters indicate that foreign investors have started adopting a cautious stance towards India. This is a concerning factor but not unexpected.

"There could be a couple of factors leading to this. Investors who have been invested in the Indian markets over the past three to five years or more might have chosen to book profit at this juncture when the Indian market is one of the best-performing markets globally and trading at relatively steep valuations," Himanshu Srivastava, senior analyst at Morningstar Advisers India said.

Additionally, he said that the concerning domestic macro situation on the back of increasing crude prices, depreciating Indian rupee, and challenging deficit situation has taken away the sheen from Indian equity markets.

"Also, there is an anticipation of higher volatility in the markets the closer it is too general elections. Hence, investors would have chosen to book profit now than ride the expected volatility going ahead," Srivastava noted.

Moreover, the escalating global trade war and a further hike in rates as indicated by the US Fed would not augur well for emerging markets like India, he added.

(With inputs from agencies.)

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