17/08/17

Foreign Investors Keep Pumping Money Into Indian Equities, But With Caution

BloombergQuint -- Foreign portfolio investors continued their investments into Indian equities in the June-ended quarter, albeit at a slower pace from the quarter before, as growing geopolitical concerns and GST-related hiccups restrained inflows.

The Indian stock market received net inflows worth $2.1 billion from foreign portfolio investors in the April-June period compared to $6 billion in the previous quarter, according to a report by research firm Morningstar.

Foreign investors maintained a “cautious stance” due to both global and domestic concerns. U.S. bombings in Syria and Afghanistan, and its aggression towards North Korea prompted FPIs to hedge their risks during the initial part of the quarter, the report said.

Given emerging markets are more susceptible to such uncertainties, they restrained their investments into Indian markets.

Morningstar Report

The cautious stance was also driven by the slower pace of economic growth in India, and short-term risks arising from the implementation of the new Goods and Services Tax, Morningstar said.

In terms of value of foreign investments, though, the quarter turned out to be India's best in the last four years. The value of foreign investments rose to $383 billion, higher then $366 billion in the previous quarter. This marked the highest level of foreign investments in Indian equities in a quarter since 2012.

India A Long-Term Bet?

Offshore equity funds and exchange traded funds, which are completely India-focussed, witnessed “robust” inflows during the April-June quarter, according to the report.

Inflows in such funds rose to $2.6 billion from $2 billion in the previous quarter. India-focussed offshore funds were the bigger beneficiary of the two, receiving $2.1 billion worth of inflows. At $0.46 billion, inflows into India-focussed offshore ETFs were “significantly lower”.

Flows into offshore equity funds are generally considered to be long-term in nature, while flows in offshore ETFs indicate short term money, according to Morningstar.

The total assets of these funds, which contributed just over a quarter of offshore fund assets in India, grew 10 percent from the previous quarter to $55.2 billion.