India resilient, global ETFs keep buying

Mumbai: Global exchange-traded funds (ETFs) have steadily increased their exposure to Indian equities amid the broader outflows by foreign portfolio investors (FPIs) in the past one year. India has seen an inflow from passive FPI money to the tune of $7.3 billion in 2021 and $1.6 billion in 2022 till August, according to data compiled by IIFL Securities. Passive funds include ETFs and index funds.

In the past one year till August, the assets under management (AUM) of passive FPIs have increased by about 8% from $59 billion in August 2021 to $64 billion in August 2022. Allocation of foreign ETFs to India was $45 billion in August 2020. FPIs have sold Indian shares worth $14.4 billion in 2021 and $24.5 billion in 2022 till August.

"Increase in FPI ETF AUM, coupled with substantial active money withdrawal, has resulted in an increase in the share of FPI ETFs to overall FPI equity ownership in India - from 9% in August 2021 to 10.6% in August 2022," said GV Giri, head of research, IIFL Securities. "This comes on the back of India's resilient markets."

Amongst foreign funds, BlackRock has consistently increased its exposure in India and holds almost 50% of the FPIs ETF asset under management in India. Seventeen of the top 20 global ETFs dedicated to emerging markets have increased their India weightage. Vanguard FTSE Emerging Markets ETF has increased its India weightage from 14.5% in August 2021 to 17.3% in August 2022, while iShares Core MSCI Emerging Markets ETF has raised India's weight from 12.8% to 15.5% during this period. Schwab Emerging Markets Equity ETF also increased India's weight from 14.8% to 17.3%. Passive funds invest in benchmark indices of a country such as MSCI India, Nifty and Sensex based on weights assigned by an index management company. For instance, ETFs invested in India have pegged their exposure to Indian stocks on the MSCI India Index and MSCI Emerging Markets Index.