India focused offshore funds and ETF see outflows

By Morningstar Analysts |  19-05-20 | 
 

Morningstar analysts have released Offshore Fund Spy Report for the quarter ended March 2020. This report provides insights into performance, estimated flows, and asset trends for offshore funds focussed on the Indian equity market. The flows are estimated from assets and total returns for the quarter ended March 2020.

An offshore India fund is one that is not domiciled in India but invests primarily in Indian equity markets. In this report, our analysts have included the asset flows of funds and exchange-traded funds with an allocation to Indian stocks as of March 2020.

Here are some key takeaways from the report:

  • Although FIIs were net buyers in the months of January (USD 1.71 billion) and February (USD 265 million), they went on a selling spree in March as they sold net assets worth USD 8.4 billion. FIIs made a strong comeback in May and turned into net buyers as they pumped in net assets worth USD 2.8 billion (till May 12, 2020) in the Indian equity markets.
  • As of the quarter ended March 2020, the value of FII investments in Indian equities stood at USD 281 billion, which is considerably lower than the USD 432 billion, recorded in the previous quarter, a decline of almost 35%. This is the lowest in the past six years, with the previous low being USD 238 billion at the end of March 2014. As of March 2019, the value was USD 423 billion.
  • There has been no respite for the India-focussed offshore funds segment from net outflows. Through the quarter ended March 2020, the category lost around USD 3.6 billion in net outflows, compared with net outflows of USD 2.1 billion during the quarter ended December 2019. This was the eighth quarterly net outflows in a row for the category, which has lost around USD 13.2 billion of net assets since the quarter ended June 2018.
  • The total assets of the 10 largest India-focussed offshore funds and ETFs also fell by 41% to an estimated USD 13.1 billion as of March 2020 from USD 22.3 billion as of December 2019. They constitute almost half of the overall assets of the offshore-India universe. The top 10 funds included two ETFs — iShares MSCI India ETF and Lyxor MSCI India ETF Acc EUR — that contributed about USD 3.5 billion.
  • Outflows continued unabated from the India-focussed offshore funds and ETF category during the quarter ended March 2020, but with more severity. Through the quarter, the category witnessed net outflows of USD 5.0 billion, sharply higher than the net outflows of USD 2.1 billion recorded in the previous quarter.
  • Continuous net outflows and significant correction in the equity markets led to a sharp decline in the assets of India-focussed offshore funds and ETFs. During the quarter, their asset base nosedived to USD 29.8 billion from USD 49.4 billion in the previous quarter, which is a fall of almost 40%.
  • During the quarter ended March 2020, the total assets of the 10 largest India-focussed offshore funds and ETFs witnessed a huge fall from the previous quarter. While they ended the December 2019 quarter at USD 22.3 billion, their asset base shrank by almost 41% to USD 13.2 billion in March 2020. These funds constitute around half of the overall assets of the India-focussed offshore fund and ETF universe.

10 Largest Offshore India-Focussed Equity Funds and ETFs

Performance of India-focussed offshore funds and ETFs

Universe for Performance: 255 Primary Funds and ETFs (Oldest Share Class)

  • During the quarter ended March 2020, all three segments—namely, large-cap, mid-cap and small-cap—entered bear-market territory. The S&P BSE Sensex fell by 28.5%, and the S&P BSE Midcap and S&P BSE Small cap indexes clocked a negative 29.4% and negative 29.9%, respectively.
  • The India-focussed offshore funds and ETFs category fell by 31.6% during the quarter. It marginally underperformed the USD-denominated MSCI India USD Index, which clocked a negative 31.1%.
  • India Value Investments Ltd £ was the top-performing fund during the quarter as well in the trailing one-year period.

Analysis of asset flows into Indian markets from funds with partial allocations

(Funds with more than USD 10 million in assets and allocations to India as of March 2020 are considered.)

  • Other regionally diversified equity funds and ETFs include Asia/Asia-Pacific funds, emerging-markets funds, and global funds. These are foreign funds that have a partial allocation to Indian equities.
  • The assets of other regionally diversified equity funds and ETFs fell sharply to USD 5.21 trillion during the quarter ended March 2020, down by approximately 24% from USD 6.87 trillion recorded in the previous quarter. Interestingly, they witnessed an uptick of 10% in their assets during the quarter-ended December 2019. The assets recorded now is the lowest in the past three years (that is, since March 2017). The magnitude of the fall in percentage terms has also been the highest over the past 10 years.
  • The value of investment into Indian equities in foreign funds fell to an estimated USD 134.5 billion during the March 2020 quarter as against USD 199.5 billion recorded in the previous quarter, a fall of 33%. The value of investments into Indian equities of all three regions—namely, global, emerging markets, and Asia/Asia-Pacific funds—have fallen simultaneously.
  • All three categories—namely, global, emerging markets, and Asia/Asia-Pacific category—of regionally diversified equity funds and ETFs were net sellers of Indian equities for the quarter ended March 2020.
  • The percentage allocation to Indian equities in all three categories of regionally diversified offshore funds also declined during the quarter.
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