Foreign investors in India went on an aggressive selling spree in the March quarter with India-focussed offshore funds and ETFs witnessing a net outflow of whopping $5 billion compared to just $2.1 billion recorded in the previous quarter. This was the eighth consecutive quarter that this segment recorded net losses, according to 'Offshore Fund Spy' report by Morningstar India.
Of the total outflows from the category, the offshore funds witnessed net outflows of $3.6 billion, whereas offshore ETFs recorded net outflows of $1.4 billion owing to risk-averse sentiment after the spread of coronavirus and the resultant lockdown. "The scenario was not very conducive even before the lockdown was announced - with slowdown in economic growth and fall in corporate earnings being major concerns," noted Morningstar.
An offshore India fund is one that is not domiciled in India but invests primarily in Indian equity markets. These are some of the key investment vehicles through which foreign investors invest in India. With them making an exodus, the asset base of the India-focussed offshore funds and ETFs also took a severe beating.
The asset size shrunk by almost 40 per cent to $29.8 billion in the March quarter from $49.4 billion recorded in the previous quarter. Consequently, the percentage allocation of these funds in the total offshore fund assets of Indian equity markets dropped to 18 per cent from 20 per cent in the December quarter.
"The future trend of the flows in the India-focussed offshore fund and ETF category would revolve around how India fares in its fight against the coronavirus pandemic versus other comparable countries and how the government brings the country's dwindling economy back on track amid multiple hindrances," says the report.
Looking into the performance, the category fell by 31.6 per cent during the quarter compared to 28.5 per cent fall in the S&P BSE Sensex. The S&P BSE Midcap and S&P BSE Small cap indexes slipped 29.4 per cent and 29.9 per cent, respectively. Meanwhile, US dollar-denominated MSCI India USD Index clocked a negative return of 31.1 per cent.
The quarter also saw foreign institutional investors pulling out $6.4 billion from the Indian equity markets and $9.5 billion from the Indian debt markets. April saw a net outflow of $904 million from the equity space, while May turned out to be a positive month with FIIs turning net buyers for the month. They have pumped in net assets worth $2.8 billion so far till May 12.
"With the expectation of selective relaxation in the lockdown and a gradual opening of economic activity in the country, foreign investors will be closely watching the developments on this front and for how quickly India gets back on the path of economic growth. They will continue to watch the coronavirus, its spread, and its likely impact on the economy while making investment decisions in India," the report says.
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