India-dedicated exchange traded funds come under redemption pressure

Foreign portfolio investors sold $6.8 billion worth of Indian equities in the past six months to January, out of which nearly half of the total outflow was by India-dedicated funds, according to the EPFR, a Boston-based agency which tracks the global capital flows.

This has superseded selling by emerging market funds in the past six months. One of the largest India-dedicated exchange traded funds (ETFs), Wisdom Tree reported a 52% fall in total fund assets since July 2015 with an outflow of nearly a billion dollars.

The combined assets under management (AUM) of India-dedicated funds were at $34 billion — equivalent to nearly 12.4% of the total AUM of foreign portfolio investors (FPIs) in India. Out of this, ETFbased funds have an AUM of $10.7 billion and balance figure is owned by non-ETF funds.

Owing to the increasing risk aversion among the global investors, even country-specific funds have started facing the heat of redemption even though economies they have invested in appear to be less volatile. This is the prime reason that relatively sticky India-dedicated funds are pulling out from Indian equity markets at a brisk pace.

India-dedicated funds are foreign funds which raise money for offshore investors with the mandate to invest in Indian equities. The emerging market funds have sold $2.1 billion between July and January.

After May 2014, India-dedicated funds had increased exposure to Indian equities considering India’s favourable positioning on the macro scale. In addition, the exchange traded fund model emerged as the best alternative for investment in case of an economic recovery.