ETFs invest $588 million in Indian equities in February

ET Intelligence Group: Exchange traded funds ( ETFs) are once again making a beeline to invest in emerging markets (EMs). Indian equities appear to be among the prime beneficiaries, thanks to their recent outperformance against the MSCI EM index as well as on investor expectations of more policy reforms from the government following the ruling BJP's big wins in state elections.

ETFs invest in a market based on the weight ascribed to security in the benchmark index. These funds invested about $588 million (nearly Rs 4,000 crore) in Indian equities in February, which was almost one-third of the total foreign portfolio investments (FPI) that came into the market during the period. It was the second month in a row when ETFs' share in the total FPI investment was significantly high.

ETFs have invested $1.2 billion in India since the beginning of 2017, accounting for nearly 18% of the total ETF flow into EMs, according to Bloomberg data. On an average, ETFs have assets under management (AUM) of nearly $29 billion, which is approximately 10% of the total FPI AUM in Indian equities.

The rising share of ETFs in the total FPI inflow helped India's share in global emerging market (GEM) ETF to increase 30 basis point in a month to 9.8% in February. Furthermore, India's weight in other benchmark funds linked to the MSCI Asia, excluding Japan, and GEM funds also went up. In February, the allocation to India by Asia ex-Japan funds increased 10 basis points to 13.7% and that by GEM funds rose 20 basis points to 11%.

FPIs invested nearly $4.8 billion in India in the first quarter of this year.