India-focused offshore funds and ETFs had registered a cumulative net outflow of $1.8 billion during 2012, compared with net outflows of $5.4 billion in 2011, according to a report by Morningstar, a mutual fund tracker.
Rupee volatility, coupled with macroeconomic concerns of a slowdown and ballooning deficit, weighed on sentiments, and resulted in outflows for most part of 2012 from the India focused offshore funds, said the report.
Despite the outflows, assets of all India-focused offshore India funds and ETFs rose 19% during the year to around $37 billion, mainly due to market movement, as the Indian stock market rebounded strongly, said the report.
Overseas inflows into India in 2012 primarily flowed from emerging market funds, Asia-Ex Japan funds, BRIC funds and other global equity funds, according to Morningstar. A large part of the inflows into the Indian stock markets also comes in via the route of such funds having partial allocation to India in their portfolios. A number of these funds have large assets under management, so inflows into these funds can translate into substantial inflows into Indian stocks, said the report.
Emerging market stock funds was also a big contributor of flows into India in 2012. These funds have a decent allocation to India in their portfolios and have registered huge inflows from investors during 2012, according to Morningstar. Concerns in the US and in the euro zone, higher growth prospects in emerging countries and quantitative easing around the world prompted investors to pour money into emerging market funds, said the report.
Among emerging market funds, Virtus Emerging Markets Opportunities Fund recorded the highest estimated inflow into Indian stocks during 2012 of $786 million, helped by an overall inflow of $3.4 billion into the fund during the year, according to Morningstar.
The active emerging market fund saw its India allocation rise from 18.7% at the end of 2011 to 25.7% in September 2012 (on a net basis) as per last available data.
Vanguard Emerging Markets Stock Idx Fund saw estimated portfolio inflows of $763 million into Indian stocks during 2012, helped by an overall inflow of $11.7 billion into the fund during the year. The passive emerging market index fund had assets in excess of $75 billion at the end of 2012, of which an estimated $5 billion was invested in Indian stocks.
Its net allocation to Indian stocks went up from 5.5% at the end of 2011 to 7.2% at the end of September 2012, helped by the outperformance of Indian stock markets during the year.
iShares MSCI Emerging Markets Index Fund also registered an estimated inflow of $679 million into Indian stocks during the year 2012, helped by an overall inflow of $10.5 billion into the fund during the year.
Active emerging market funds like Oppenheimer Developing Markets Fund, Vontobel Emerging Markets Eq, and Aberdeen Global Emerging Markets Equity also registered robust portfolio flows into India, primarily helped by the strong overall inflows into these funds in 2012.
A few Asia-ex Japan funds having partial allocation to India in their portfolios also saw decent inflows into Indian stocks. Aberdeen Global Asia Pacific Equity Fund registered an estimated portfolio inflow of $228 million into Indian stocks, helped primarily by an overall inflow of $1.9 billion into the fund during the year.