ETFs steadily increasing exposure to Indian equities

Global exchange traded funds (ETFs) are steadily increasing their exposure to Indian equities. In January, they contributed nearly half of the total FII inflows into Indian equities, according to data compiled from Bloomberg. FIIs invested $2 billion (Rs 12,400 crore) in Indian equities and $2.4 billion in debt securities in January.

Exchange funds are a kind of passive funds, investing in the stocks of a benchmark index on the basis of weights assigned by an index management company. For instance, most of the ETFs invested in India have pegged their exposure to Indian stocks based on the weights of the MSCI India index.

The buoyancy in ETF flows can be gauged from the fact that iShare MSCI India ETF witnessed infl ows of $581 million in January alone — which is equivalent to 28.8% of total FII infl ows in January.

After the recent inflows, the iShare MSCI India ETF has become the largest ETF in Indian equity markets with total assets under management of $2.8 billion.



Moreover, India-dedicated funds (both ETF & non-ETF) were also a big driver for FII infl ows in January with investments worth $800 million. The robust infl ows from ETFs partially explain why Nifty outperformed the mid-cap and small-cap indices by a wide margin last month. The S&P BSE Sensex gained 6.1%, while the S&P BSE Small-cap and S&P BSE Mid-cap gained 1.8% and 3.4% respectively, during the period.