India-focussed offshore funds and exchange-traded funds (ETFs) witnessed a net outflow of USD 5 billion in three months ended March 2020, making it the eighth consecutive quarter of withdrawal amid the coronavirus pandemic, according to a Morningstar report.
In comparison, a net outflow of USD 2.1 billion was witnessed during the quarter ended December.
Since the quarter ended June 2018, the category has lost USD 16.3 billion of net assets. India-focussed offshore funds and ETFs are some of the eminent investment vehicles through which foreign investors invest in Indian equity markets.
Of the total quarterly net outflow of USD 5 billion, India-focussed offshore ETFs registered a net withdrawal of USD 3.6 billion, while the remaining USD 1.4 billion was withdrawn by India-focussed offshore funds, the report noted.
The gravity of the situation in recent times can be gauged from the fact that the net outflows for the category in the first three months of 2020 was close to the amount of net outflows the category witnessed in the calendar year 2018 (USD 5.3 billion) and 2019 (USD 5.9 billion).
Flows into offshore funds are generally considered to be long-term in nature, whereas flows into offshore ETFs indicate predominantly short-term money.
"Higher net outflows from India-focussed offshore funds indicate that foreign investors with long-term investment horizons have been adopting a cautious stance towards India. Though this is concerning, but not entirely unexpected, given the country's current economic landscape and uncertainty over the impact of the coronavirus pandemic on the global as well as domestic economy," the report said.
"The future trend of the flows in the India-focussed offshore fund and ETF category would revolve around how India fares in its fight against the coronavirus pandemic versus other comparable countries and how the government brings the country's dwindling economy back on track amid multiple hindrances," it added.
The shock of the coronavirus pandemic has been much more severe and faster than any other financial disruption witnessed in the past.
The sharp drop in the equity markets decreased the asset base of India-focussed offshore funds and ETFs. During the quarter, their assets declined to USD 29.8 billion from USD 49.4 billion recorded in the previous quarter.
During the quarter ended March 2020, all three segments -- large-cap, mid-cap and small-cap -- performed negatively. The Sensex fell by 28.5 per cent, while BSE Midcap and BSE Smallcap indices dropped 29.4 per cent and 29.9 per cent, respectively.
The value of investment into Indian equities in foreign funds tumbled to an estimated USD 134.5 billion during the quarter ended March 2020 against USD 199.5 billion recorded in the previous quarter.
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