More volatility ahead for Indian markets?

For several EM investors, the US Federal Reserve’s signal on Monday that the pace of interest rate hikes would be gradual rather than otherwise raised hopes of a tempering in outflows from emerging markets (EM). But for India, the news might be far from comforting given that the share of US-domiciled funds in total India-dedicated ETFs jumped to 72 per cent from 49 per cent four years ago — that’s signifi cant considering the total assets under management (AUMs) of India-dedicated ETFs, at $10.87 billion in October 2015, accounted for almost 3 per cent of total FIIs’ assets here.

While most EMs witnessed major fund outflows due to the fear of a US rate hike in August and September, US-domiciled funds contributed 55 per cent and 21 per cent of the total FPIs outflows in Indian equities during the two months, underscoring the probability of increased fluctuations of Indian shares in the near term.



"We might see more outflows of the USdomiciled funds as their risk-reward will be directly linked to the US interest rate," said Utkarsh Agrawal, senior analyst, Index Research & Design, S&P BSE Indices.

These US-domiciled India-dedicated funds have sold $1.53 billion worth of Indian equities since May 2015 and accounted for nearly 85 per cent of the total selling by the India-dedicated ETFs during the same period.