India-focused offshore funds registered a lower net outflow in 2012 at $1.8 billion, compared with $5.4 billion in 2011, signalling a return of confidence among foreign investors. According to a report by mutual fund tracker, Morningstar, the drop in outflows was due to the improved sentiments in the Indian markets.
Concerns
“Quantitative easing around the world, and various policy reforms by the Union Government announced in the second half of the year led to large inflows into Indian stocks,” said the report. The Indian markets had rebounded strongly, the report added.
The outflows from these funds were owing to concerns such as the rupee volatility, worries of a macroeconomic slowdown along with ballooning deficit resulted in outflows for most part of 2012, the report said. However, despite the outflows, the assets under the offshore funds and exchange traded funds (ETFs) grew 19 per cent during 2012 to $37 billion.
While FIIs pumped in about $24 billion during the year, the report said that the funds did not find their way in through the offshore funds or ETFs. These came primarily from emerging market funds, Asia-Ex Japan funds, BRIC funds and other global equity funds which have a partial allocation to India in their portfolios.
Reasons
“These funds have a decent allocation to India in their portfolios, and have registered huge inflows from investors during 2012. Concerns in the US and in the Euro Zone, higher growth prospects in emerging countries, and quantitative easing around the world, has prompted investors to pour money into emerging market funds,” said the report about emerging market funds.
Among emerging market funds, Virtus Emerging Markets Opportunities Fund recorded the highest estimated inflow into Indian stocks in 2012 of $786 million, helped by an overall inflow of $3.4 billion into the fund. This active emerging market fund also saw its India allocation rise, on a net basis, from 18.7 per cent at the end of 2011 to 25.7 per cent in September 2012. Fund’s top India holdings are ITC (4.56 per cent), HDFC (4.33 per cent) and Hindustan Unilever (3.52 per cent).
Vanguard Emerging Markets Stock Index Fund was second with an estimated portfolio inflow of around $763 million into Indian stocks during 2012, helped by an overall inflow of $11.7 billion into the fund during the year.
sneha.p@thehindu.co.in