Bengaluru – 19th August 2024: Morningstar Investment Research India Private Limited has reported net inflows of USD 18.4 billion into India-focused offshore funds and Exchange-Traded Funds (ETFs) during the first half of 2024. This substantial inflow underscores the increasing confidence among foreign investors in India’s long-term growth potential.
Himanshu Srivastava, Associate Director-Manager Research at Morningstar, highlighted the key drivers behind this trend: “The net inflows of USD 18.4 billion into India-focused offshore funds and ETFs in the first half of 2024 reflect growing confidence among foreign investors in India’s long-term potential. This robust inflow highlights India’s appeal as a stable and promising investment destination, driven by a resilient economy, improving corporate earnings, and a strong focus on reforms. Foreign investors are increasingly leveraging the funds and ETF route to gain exposure to the Indian stock markets, underscoring their positive outlook on the country’s growth trajectory.”
Looking ahead, Srivastava noted that the future trajectory of foreign investor flows into Indian equity markets would be influenced by global economic factors. “The future trajectory of flows from foreign investors into the Indian equity markets will likely be shaped by global factors such as inflation trends, the outlook for global economic growth, and the US Federal Reserve’s decisions on interest rates. Geopolitical tensions, including the ongoing conflicts between Russia and Ukraine, as well as Israel and Hamas, alongside the economic conditions in the US and Europe, will also be critical in determining the direction of these flows,” he added.
These insights underline the dynamic and evolving nature of global investment trends, particularly in the context of emerging markets like India, where foreign investor interest continues to grow despite global uncertainties.
Takeaways from the report:
- Assets and Flows of India-Focused Offshore Fund and ETFs:
- The India-focused offshore fund and ETF category has been witnessing net inflows for eight consecutive quarters since the quarter ended September 2022.
- Since September 2022 till June 2024, the category has received net inflows of USD 37.9 billion.
- This year so far till June 2024, the category has received net inflows of USD 18.4 billion. While the category received net inflows of USD 9.0 billion during the March quarter, it received the highest ever quarterly net inflows of USD 9.4 billion during the quarter ended June 2024.
- Within the India-focused offshore fund and ETF category, the India-focused offshore fund segment witnessed net inflows of USD 10.6 billion this year till June 2024. On the other hand, India-focused offshore ETFs received net inflows of USD 7.8 billion during the same time frame.
- Robust net inflows and a strong rally in the Indian equity markets drove the asset base of the India-focused offshore fund and ETF category to swell by 42% to USD 102.3 billion from USD 72.2 billion in December 2023.
- Maximum number of funds in the India-focused offshore fund and ETF category continued to witness net inflows, which points toward a strong positive trend and sentiments among foreign investors toward Indian equity markets.
- Performance of India-Focussed Offshore Funds & ETFs:
- Despite intermittent challenges, the India equity markets continued to march northwards, creating multiple all-time high levels in the first half of 2024.
- Over a six-month period as of June 2024, the S&P BSE Sensex Index registered a gain of 9.4%. However, the mid- and small-cap segments were the major beneficiaries. While the S&P BSE Midcap Index surged by 25.3%, the S&P BSE Small Cap Index appreciated by 22.2%.
- The India-focused offshore funds and ETF category registered a gain of 13.8%, whereas MSCI India USD Index delivered a return of 17.1% over the six-month period as of June 2024.
- Out of the universe of 285 funds under consideration, 48 managed to outperform both the category average and the MSCI India USD Index in the first six months of 2024.
- Asset Flows Into Indian Markets From Funds With Partial Allocations
- The assets of other regionally diversified equity funds and ETFs surged during the first half of the year by 9.27% to USD 9.6 trillion as of June 2024, from USD 8.8 trillion in December 2023. Other regionally diversified equity funds and ETFs include Asia/Asia-Pacific funds, emerging-markets funds, and global funds. These are foreign funds that have a partial allocation to Indian equities.
- The value of investment into Indian equities in regionally diversified funds also surged to an estimated USD 369.3 billion as of June 2024 from USD 312.7 billion at the end of December 2023, registering an increase of 18.1%. This is the highest-ever allocation to Indian equities in the portfolios of regionally diversified funds.
- The value of allocation to Indian equities also surged in all the three categories of regionally diversified equity funds and ETFs in the first six months of the current year.
- Subsequently, the percentage allocation to Indian equities also rose in the portfolios of global funds, emerging-markets funds, and Asia/Asia-Pacific funds.
