India-focused offshore funds and ETFs pull out $1.9 billion in 4 months

The mood among long-term overseas investors is turning sour. In the last four months ending May, India-focused offshore funds pulled out $966 million from Indian equities, with rising crude oil prices, the rate hike by the US Federal Reserve and volatility ahead of the general elections spooking investors. 

This is the highest sales since last January. These funds had bought into Indian stocks every month in the calendar year (CY) 2017, pumping in $5.76 billion. While the moving out of long-term money is a concern, it is not entirely unexpected, said experts.

“Investors who have invested over the last three to five years or more might have chosen to book profit, anticipating higher volatility in the run-up to the general elections. Rupee depreciation on the back of further rate hikes by the US Fed is also playing on their minds,” said Himanshu Srivastava, senior analyst, Morningstar Investment Adviser India. 

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India-focused offshore funds are not the only category seeing outflows. India-focused exchange traded funds or ETFs witnessed an equally large net outflow of $940 million in the past four months. Taken together, India-focused offshore funds and ETFs have seen outflows to the tune of $1.9 billion during February-May 2018. The combined monthly outflow of the two categories at $600 million in May is the highest in at least 17 months. The strong inflow in January, though, brings down the outflow tally to $813 million in the first five months of CY18.  

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Overall, if all foreign portfolio investors are taken, they have sold stocks worth $245 million in the first five months of CY18.

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A depreciating rupee has added to their worries. “Going ahead, we will be entering the election season, which could add a fair bit of volatility in the market. FPIs will also be focusing on the progress of monsoon, which is essential to gauge how inflation could pan out,” said Srivastava. 

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As per the latest data on sectoral movement, India-focused ETFs  and offshore funds appeared the most bullish on consumer and technology stocks, raising their exposure by 1.8 per cent and 2.33 per cent, respectively, as compared to their holding at the end of December 2017, while their holding in financial services fell by 1.1 per cent in this period.