Comments
India fell out of favour with overseas investors ever since a bevy of scams erupted last November and the Reserve Bank of India went on an interest rate hiking spree to combat inflation.
This is reflected in the incessant outflows from India-focused Exchange Traded Funds (ETFs) listed overseas between November 2010 and August 2011. This contrasts with 2010, when most India ETFs were raking in new money.
Data from Bloomberg show that WisdomTree India Earnings fund, the largest India ETF listed in the US, lost one-fifth of its assets between November 2010 and August 2011, witnessing an outflow of $286 million.
For the calendar year 2010, the fund had seen inflows of $119 million. The trend is similar in other India ETFs listed on US exchanges. Larger ones such as PowerShare India Portfolio fund, IPath MSCI India Index and Ishare S&P India Nifty 50 Index witnessed redemption pressure in this correction.
Market Vectors India Small Cap fund, a $50- million small-cap oriented fund, saw almost 27 per cent of its assets erode in this period.
India ETFs listed on European exchanges did no better. The larger of these funds, Lyxor ETF India, that manages assets over $1.3 billion, witnessed outflows of around $488 million.
Outflows from Asia-listed ETFs were relatively milder. India ETFs listed in Singapore, Japan and Hong Kong recorded outflows of less than $50 million.
The above trends show that global investors, irrespective of the region, turned wary of the prospects of Indian equity. This is a departure from the trend witnessed in previous years when ETF investors showed divergent preferences, India ETFs recorded inflows in some regions while there were outflows from others in the period prior to November 2010.
Our sample includes only the larger India-specific ETFs listed in the major global stock exchanges. We have not considered the funds flowing in to India through emerging market and BRIC exchange traded funds.
According to CLSA's Asia Pacific market report, global ETFs accounted for 6.3 per cent of FII assets in India towards the end of June 2011.
Of these, India dedicated funds account for two-third of the total investment.
The outflows from ETFs correspond with the 19 per cent fall in the Nifty and Sensex since November 2010. Interestingly, FII flows recorded by SEBI in the November to August period show a positive inflow of $4.3 billion.
This can partly be explained by the $4 billion received in the early part of November.
Net purchases by external investors in the first eight months of this year are just $44 million.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.