India-focused offshore funds and ETFs see steady inflows

Net inflows into India-focused offshore funds and ETFs rose to $9.4 billion in the June quarter from $9 billion in the March quarter, marking the eighth consecutive quarter of inflows into these offshore funds since the quarter ended September 2022, according to a Morningstar report.

Within this category, the India-focused offshore funds segment has seen net inflows of $10.6 billion this year through June. On the other hand, India-focused offshore ETFs have seen net inflows of $7.8 billion during the same period.

Solid net inflows and a strong rally in Indian equity markets pushed assets in the India-focused offshore fund and ETF category up 42 per cent to $102.3 billion from $72.2 billion in December 2023.

Growing self-confidence

Himanshu Srivastava, Associate Director, Morningstar Investment Research India, said the net inflow of $18.4 billion reflects growing confidence among foreign investors in India’s long-term potential. This solid inflow underscores India’s attractiveness as a stable and promising investment destination, driven by a resilient economy, improving corporate earnings and a strong focus on reforms, he said.

In the six months to June, the Sensex index was up 9.4 per cent, while the BSE midcap and smallcap indices rose 25 per cent and 22 per cent respectively.

The India-focused offshore funds and ETFs category was up 14%, while the MSCI India USD Index returned 17% in the six months to June.

Of the 285 funds considered, 48 outperformed both the category average and the MSCI India USD index in H1 2024.

Assets in other regionally diversified equity funds and ETFs rose 9% in the first half of the year to $9.6 trillion, compared with $8.8 trillion in December 2023.

The value of investments in Indian stocks in regionally diversified funds also rose to an estimated $369 billion from $313 billion at the end of December, up 18 percent. This is the highest allocation to Indian stocks in the portfolios of regionally diversified funds.

Srivastava said geopolitical tensions, including the ongoing conflicts between Russia and Ukraine, as well as Israel and Hamas, and the economic situation in the U.S. and Europe, will have a decisive influence on the direction of these flows.