Net outflows from India-focussed offshore funds and exchange-traded funds nearly tripled in 2013 making it the third consecutive year of outflows for the category. The net outflows in 2013 touched $4.75 billion, about 2.6 times higher than the amount seen in 2012, according to a report by global fund tracker, Morningstar.
India-focussed offshore funds are those funds not domiciled in India but invest primarily in Indian markets.The report authored by investment strategist Mona Agarwal noted that the net outflows during the December quarter rose to about $1.3 billion compared to the $0.7 billion of net outflows in the September quarter.
“The outflows continued in 2013, owing to the poor performance of the Indian rupee and a weak macro-economic environment (which was besieged with high and sticky inflation, weak industrial production, low growth etc),”said the report titled “Offshore India Fund Spy” for the quarter and year-ended December 2013.
Meanwhile, foreign investors continued to be net buyers in India by over Rs.40,000 crore in the December quarter, driven by allocations to funds with broader mandates to invest in Asian or emerging markets, according to market watchers.
The recovery in the benchmark indices along with the appreciation in the rupee helped these funds outperform, said the report.
“Quarterly returns of India-focused offshore funds and ETFs were negative during the first three quarters of 2013 but recovered smartly in the fourth quarter ending December 2013, with average returns of 11.7% (in USD terms) during the quarter. Indian equity markets managed to close the fourth quarter on a high note, with the benchmark S&P BSE Sensex index returning 9.2% (in INR terms),” said the report.
With 12% average returns, September 2013 was the strongest month for these funds during the quarter, noted the report.
During the quarter, among the top ten largest India-focussed offshore funds and ETFs, Aberdeen Global India Equity Fund D2 was the worst performer, delivering returns of about 7.63%. It underperformed its peer category which returned 11.7% during the period. Aberdeen Global Indian Equity Fund registered a net inflow of $301 million over the past year and a net outflow of $101 million during the fourth quarter of 2013.
HSBC GIF India Equity A ACC, domiciled in Luxembourg, was the best performer having given returns of about 19.47% during the December quarter. HSBC GIF Indian Equity registered the biggest outflow of $179 million and $737 million in the fourth quarter and year, respectively among all India-focused offshore funds and ETFs on the back of underperformance during the rest of the year.
For India-focused funds the mid and small-cap India-focussed offshore funds and exchange traded funds (ETFs) outperformed the large-cap funds in the same category in the December quarter. These funds gave returns of about 12% on average for the quarter.
However, large cap funds outperformed over the one-year period. The top five performing funds during the period were large-cap funds. Among these, the top two funds were domiciled in South Korea while the remaining three were domiciled in Europe. US and Japan-based funds were the underperformers in this segment, the report added.
The report also said that over the one-year period, export-oriented sectors and consumer cyclicals outperformed most other sectors of the economy. “Higher interest rates in the second half of the year affected the returns of interest rate-sensitive sectors such as banking, real estate and industrials,” said the report.
In the one-year period ending December 2013, Aberdeen Global India Equity Fund D2 was the best performer with returns of 0.63% while HSBC India Open fund was the worst performer having given returns of -14.7%.
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