The India-focused offshore funds and ETF category, comprising prominent investment vehicles through which foreign investors invest in the Indian equity markets, witnessed net inflows of $126 million for the quarter ended September (Q2), after 17 consecutive quarters of net outflows. The category had seen outflows of $1.58 billion in the previous quarter.
The offshore funds segment saw net inflows of $103 million, while the ETF segment witnessed net inflows of $23 million. This is for the first time since the quarter ended June 2017 that both these segments received quarterly net inflows.
The asset base of India-focused offshore funds and ETF category rose 7.1% to $40.7 billion in Q2 on the back of net inflows and the market rally. The category returned 4.85% during the quarter, underperforming the MSCI India USD Index, which delivered 6.75%.
While the Sensex gained 8.31% during the quarter, the BSE midcap and smallcap rose by 14.46% and 14.79%, respectively. FPIs bought shares in July ($618 million) and August ($6.44 billion), but sold $903 million in September as high inflation dashed hopes that the Fed would scale down its rate hikes.
Assets of other regionally diversified equity funds and ETFs dropped 7% to $7.1 trillion in Q2. The value of investments into Indian equities in regionally diversified funds stood at an estimated $249 billion in Q2, up 2.1%.
The value of investment into Indian equities declined in the portfolios of Asia/Asia-Pacific funds, but rose in the portfolios of emerging markets and global funds in Q2. Interestingly, the allocation percentage to Indian equities rose across global funds, emerging markets and Asia/Asia-Pacific funds.
One hundred and four out of 256 funds witnessed net outflows amounting to $525 million. Balance funds witnessed net inflows amounting to $651 million. UTI India Dynamic Equity USD Instl received the highest net inflows of $83 million, followed by iShares MSCI India ETF with net inflows of $72 million. Abrdn Indian Equity A Acc GBP saw net outflows
of $45 million, followed by RAMS EPF India Equities Port J USD, which saw net outflows of $38 million.
Over a one-year period, UTI India Dynamic Equity USD Instl has seen the maximum inflows of $296 million, with its assets ballooning to $1.14 billion. IShares MSCI India ETF is the worst hit with net outflows of $1.03 billion. Despite massive outflows, IShares MSCI India ETF retains its top spot as the largest fund in the India-focused offshore fund and ETF category, with assets of over $4.2 billion.
Given the sharp bounce-back in the performance of the Indian equity markets in Q2, nine of the 10 largest India-focused offshore funds and ETFs delivered positive returns. Ashoka India Opps A USD Acc was the top-performing fund, returning 11.2%.
Sundaram India Midcap Cornerstone, a Singapore-domiciled fund with assets of $48 million, was the top-performing fund in the India-focused offshore fund and ETF category during the quarter. It delivered a 13.7% return and outperformed the category average (4.8%) and MSCI India USD Index (6.8%) by a huge margin.