After 17 quarters of net outflows in a row, India-focused offshore funds and exchange-traded funds (ETFs) have received net inflows for three consecutive quarters now, hinting at a shift in the stance of foreign investors regarding the Indian market, a recent report by Business Standard stated.
Quoting a Morningstar report, BS informed that between October 2022 and March 2023, offshore funds and ETFs have received a net flow of $1.8 billion.
Experts told the market daily that the change in the stance of foreign portfolio investors (FPIs) is driven by the improvement in valuations of the Indian market and strong fundamentals.
“There is a distinct change in the FPI strategy with a clear tilt in favour of India. In the recent past, FPIs were continuous sellers in India due to India’s premium valuations and the opportunities provided by the Chinese reopening and the relatively lower valuations in South Korea, Hong Kong and Taiwan. That phase is now over and India has once again become a favoured emerging market destination for FPIs,” V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, was quoted as saying in the report.
The report further pointed out that India's relative valuation to other emerging markets (EMs) has improved significantly in the past few months after rising to very high levels in the previous calendar year.
It mentioned that around six-seven months back, India was trading at a 90 percent premium to its EM peers but now the gap has narrowed following a correction in Indian stocks and a simultaneous rally in EM peers. Nifty is trading at its long-term average valuations against emerging markets, added BS.
The Morningstar report also highlighted that the flows into India-focused offshore ETFs have remained buoyant even when the Indian equity market struggled for the most part of the last quarter of the financial year 2023, it said.
As per the report, among the ETFs, the iShares MSCI India ETF received the highest net inflows of around $227 million. However, it also added that the performance of offshore funds and ETFs has been a mixed bag in the long term.
"Although the category has performed slightly better over the past year, over the past three years, it has lagged the MSCI India USD Index," the report further informed.