India dedicated exchange traded funds, or ETFs, have seen their assets under management (AUMs) increase by a third so far this calendar as global investors bought into these instruments to catch the superior performance of Indian markets.
The combined AUM of the top eight India dedicated ETFs has risen 28.31% to $4.58 billion, with four reporting an increase of more than 37% in their equity holdings.
The Ishares MSCI India Index ETF has seen the largest rise with its assets going up 54% year till date on the back of a 22.53% rise in the net asset value (NAV) and decent inflows.
Wisdomtree India Earnings ETF has seen a 48.88% rise in AUM to $1,064 million, led by a 20.68% return.
The AUMs of Powershares India Portfolio ETF and Ishares S&P India Nifty 50 index ETF too have risen 37% each.
Experts believe the rise in assets of India dedicated ETFs was on account of the sudden and sharp surge in Indian markets that caught them off-guard.
“A lot of big western foreign institutional investors (FIIs) have over the last two months bought India dedicated ETFs to catch up with Indian markets post the unexpected reforms announcement by the government. Since the Indian markets are illiquid, it’s easier for them to participate or catch the momentum using the ETF route,” said Saurabh Mukherjea, head of institutional equities at Ambit Capital.
The Indian markets have gained an average 20% in dollar terms since the start of this year.
Better earnings profile of Indian corporates and hopes of a turnaround in Indian macros have also led foreigner investors to invest in India.
“The earnings of Indian companies have been coming in line or better than expected. When compared to other countries, the earnings of Indian companies are more resilient and with global commodity prices under pressure, the input costs would further fall. The worst seems to be over for Indian companies and with RBI likely to engage in some action this month-end, the FIIs are getting positive on India,” said Gopal Agrawal, CIO at Mirae Asset Global Investment.
However, experts believe these ETFs won’t continue to gain inflows at the same pace unless there is a sudden risk-on rally or some unexpected macro development.
“Over the last few weeks, many of the FIIs have sold their ETFs and bought selective high quality cyclical stocks in auto and power infrastructure segments in order to beat the market returns. We may see ETF buying going up once again if say RBI cuts rate unexpectedly,” said Mukherjea.
In fact, over the last three weeks, the AUMs of these ETFs have fallen 5-6% as the Indian markets shed 2% and the rupee depreciated nearly 3.8%.
“The country dedicated funds are still not in favour. For most of the big global endowment and pension funds, India in itself is not an asset class and so when they invest, they come in through emerging market funds and India is an indirect beneficiary of the same,” Punita Kumar Sinha, founder and managing partner at Pacific Paradigm Advisors, said at a recent Ficci conference on the capital markets.