Offshore fund outflow doubles to $5 billion in March quarter

Suresh P Iyengar Mumbai | Updated on May 18, 2020

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The outflow from the India-focussed offshore funds and ETF (Exchange Traded Funds) more than doubled in March quarter to $5 billion against $2.1 billion outflow recorded in the December quarter as worst-ever pandemic rattled economies across the globe.

In fact, the offshore funds have been bearish on India and have registered the eigth-consecutive quarter of net outflows, shaving off $16.3 billion since the quarter ended June 2018, according to a Morningstar report released on Monday.

The sharp drop in the equity markets halved the asset base of India-focussed offshore funds and ETFs to $29.8 billion in March quarter against $49.4 billion recorded in December quarter.

During the March quarter, all the BSE Sensex fell by 28 per cent while, BSE’s mid- and small-cap indices were down 29 per cent and negative 30 per cent, respectively.

The India-focussed offshore funds and ETF category was down 31 per cent during the quarter, while the MSCI India dollar index declined by 31 per cent.

Selling spree

Himanshu Srivastava, Senior Research Analyst, Morningstar Investment Adviser, said foreign institutional investors were net sellers to the tune of $6.4 billion in the Indian equity and $9.5 billion in debt. This, along with the lockdown, had a multi-pronged impact on the domestic financial markets with equity markets going on a free-fall, yield in the bond markets shot up sharply and the liquidity in the credit segment frozen, he said.

The impact was also evident on the currency, with the rupee hitting an all-time low of 76.81 against the greenback in April, he added.

Bumpy ride ahead

However, April bought a ray of hope as there was a fair bit of recovery in the markets with selective relaxations in less-affected areas.

Moreover, the government is planning to gradually open business activity and pave way for economic growth. Moreover, the government and the RBI have announced several measures and fiscal stimuli to affected sectors in order to boost the economy. This improved sentiment, triggering a relief rally with bellwether Sensex gaining 14 per cent in April, while BSE’s mid- and small-cap indices gained 14 per cent and 15 per cent during the month.

It may not be a smooth ride for the markets going ahead as it deals with multiple hindrances. While the slow pace of economic growth and unencouraging macro economic indicators and corporate earnings are major concerns, uncertainty over the economic impact of the coronavirus pandemic will continue to keep investors on tenterhooks, he added.

Published on May 18, 2020

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