Offshore funds, ETFs pull out $1.5 b in June quarter on economy worry

Suresh P Iyengar Mumbai | Updated on August 20, 2020

These funds on exit mode for the ninth consecutive quarter: Morningstar study

India-focussed offshore funds and ETFs (exchange traded funds) continued to be on exit mode, but slowed their withdrawals to $1.5 billion in the June quarter against $5 billion in the March quarter due to persisting concerns over economic growth with the Covid pandemic yet to abate, said Morningstar, a global funds’ tracker, in a report.

This is the ninth consecutive quarter of exits by offshore investors, which have turned pessimistic on India’s growth prospects. While India-focussed offshore funds pulled out $698 million (net) through the June quarter, offshore ETFs withdrew $776 million.

However, the recovery in the equity markets during the last quarter helped the asset base of offshore funds and ETFs surge to $34 billion against $30 billion logged in the previous quarter. All the three segments — large-, mid-, and small-cap — rebounded sharply after the steep fall in the March quarter.

The S&P BSE Sensex rose by 18.5 per cent, and S&P BSE Midcap and S&P BSE Small cap indices by 23 per cent and 29 per cent, respectively.

Himanshu Srivastava, Associate Director, Manager Research, Morningstar India, said the coronavirus pandemic has not only affected the social and public life of individuals but also left the global economy in a bad shape, with mounting costs for businesses around the globe and no idea what the recovery will look like.

Painful Q1 2020

The first quarter of this year was exceptionally painful for the financial markets worldwide. The Indian equity market, too, witnessed intense volatility and declined sharply in the March quarter. The scenario, however, reversed in the June quarter, as it witnessed a sharp recovery, he said.

The assets of other regionally diversified equity funds and ETFs rebounded sharply to $6.49 trillion for the quarter ended June 2020 compared with $5.22 trillion in the previous quarter. The value of investments into Indian equities by foreign funds rose to about $159 billion against $134 billion in the previous quarter.

After an exodus of foreign investments worth $8.4 billion in March, FIIs turned net buyers in the Indian equity markets from May due to attractive valuation of the Indian equities after the sharp correction during the first quarter of the calendar year and significant depreciation of rupee against dollar which provided FIIs a rather good entry point.

However, the escalation of tensions between India and China at the border did hit sentiments hard, which led to FIIs pulling investments out of Indian equities intermittently, said Srivastava.

Published on August 20, 2020

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