India-dedicated funds see record inflows in July second week

India dedicated funds are seeing humongous amounts of money pouring in and last week saw record high flows of $1.25 billion, with the most flows coming into exchange traded funds at $848 million, data from EPFR and Elara Securities showed.

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A good portion of the funds that came in was from Ireland, while consistent inflows were seen from the US, Japan, and Luxembourg. South Korea has also been a steady contributor over the past 10 weeks averaging at $40 million every week.

Post the Lok Sabha election results outcome this year, weekly inflows into India-dedicated funds have been averaging at $1 billion.

Long-only funds have been investing $400 million weekly into ETFs, though inflows into midcaps and smallcaps have been subdued because, in many of the stocks in these segments, valuations have run up. In fact, inflows in such funds have been weak since October last year.

India-dedicated foreign-domiciled funds have been seeing considerable action in over the last couple of years and activity has intensified. “We see India as a “flow story” with one of the less talked-about pillars of this flow story being rise of the India-dedicated foreign domiciled equity funds,” said Nomura Securities, adding that there has been a surge in such funds. Since the start of 2023, such funds have seen over $20 billion of net inflows, out of a universe of funds with total assets under management of $58 billion.

The inflows into India dedicated funds have gathered pace from April 2023 onwards when there was a distinct shift by global investors to India from China. The inflows into such funds as a percentage of the free float market capitalization is rising meteorically towards the June 2015 mark, when it had topped 2.5 per cent. Interestingly, since March last year, there has been a continuous unbroken record of net inflows every week.

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The week ending July 5, however, was an aberration with inflows slowing to a 12-week low of $153 million, chiefly due to outflows of $285 billion from ETFs. While inflows from Japanese investors were sustained, there had been a slowdown in flows from the US while there was redemption from Ireland.

Inflows into India have to be seen in the broader context of investments in emerging markets that have seen net inflows of $5.8 billion in July so far. There is considerable momentum from long-only investors who are seeing substantial value in these markets. A good portion of the money is flowing into technology funds.