A closer look at the Indian markets will tell that global exchange traded funds (ETFs) have continued selling so far this year. According to a report by BNP Paribas, India is one of the few countries where ETF selling has been met by buying from active institutional funds.
By Urvashi Valecha
Foreign portfolio investors (FPIs) have remained buyers of equities, with net flows standing at $10.82 billion since May. These inflows have exceeded the outflows that the markets witnessed in March when FPIs sold equities worth $8.3 billion as there was a global sell-off because of Covid. Currently, India has a net inflow of $5.04 billion till date in 2020.
According to NSDL data, the markets saw the highest inflows this year in August, with FPIs buying equities worth $6.09 billion. This came at a time when blue chip companies such as ICICI Bank, Axis Bank and India’s largest mortgage lender HDFC hit the capital markets to raise funds. Till September 4, FPIs sold stocks worth $152.06 million.
The daily average buying by FPIs stood at $290.28 million in August, whereas in September, the daily average selling was at $38 million. This is a swing from March when the daily average selling was at $419 million. The markets have seen robust inflows from FPIs because of abundant global liquidity on the back of quantitative easing by central banks.
A closer look at the Indian markets will tell that global exchange traded funds (ETFs) have continued selling so far this year. According to a report by BNP Paribas, India is one of the few countries where ETF selling has been met by buying from active institutional funds. The report shows that ETFs sold equities worth nearly $4.3 billion in 2020 till August and non-ETFs bought equities worth $3.8 billion in the same period.
Amit Shah, head of India equity research, BNP Paribas, said ETFs too have turned into small buyers. “ETFs today are not sellers, in fact, they have turned into small buyers. ETF selling was just a reaction to global weakness on account of Covid-19. These are largely global ETFs which are sellers and Quant funds.”
Additionally, active institutional funds could also be looking at buying from a long-term perspective. UR Bhat, director, Dalton Capital Advisors (India), said: “Investors coming through ETFs are typically those who take exposure to specific markets through index proxies. They look to buy and sell in India depending on macro fundamentals. With the continuing lockdown and rising cases of infection, they may have gotten jittery about a quick economic recovery. At the same time, active investors who are more knowledgeable are looking at companies whose prospects are largely unaffected, or in fact, have improved because of the raging pandemic. This could explain why active investors are back while ETF investors are waiting on the sidelines.”
Many brokerages are also of the view that FPI flows could see some consolidation going ahead. In a report in August, BofA Securities stated it expected the markets to consolidate, and so, this could lead to slowing down of FPI flows in near term.
However, market experts don’t expect there will be a material change in flows. “The recent FPI flows, especially in August, have largely been on account of deals. I think the global liquidity rush will ensure FPI inflows don’t slow down materially. After a strong August in terms of inflows, we should expect some slowdown as we get closer to US elections, coupled with the Indian Covid-19 count spiked in the last few days,” said Amit Shah of BNP Paribas.