India-focused offshore funds, ETFs draw $9.4 billion in Q2 CY24

Bengaluru: India-focused offshore funds and exchange-traded funds (ETFs) category received the highest ever quarterly net inflows of  $9.4 billion during the quarter ended June of the current calendar year (CY24), up from $9 billion during the March quarter according to a report by Morningstar India released on Monday.

"This is now the eighth-consecutive quarter since June 2022 that both India-focused offshore funds and ETFs have recorded quarterly net inflows. Combined, these two segments saw net inflows of $18.4 billion in the first half of 2024. Altogether, both received the net inflows of  $37.9 billion from September 2022- June 2024 period", said the report.

India-focused offshore funds and ETFs are investment products created specifically for foreign investors who want to invest in the Indian market. These funds and ETFs are managed outside India, but their investments are primarily made in Indian equities.

While the offshore funds segment saw net inflows of $10.6 billion in the first half (H1) of the CY24,  the offshore fund ETFs saw net inflows of $7.8 billion during the same period.

"The higher inflows into India-focused offshore funds compared with ETFs suggest that foreign investors are increasingly viewing India as a long-term investment destination", the report added.

On a quarterly basis, the offshore fund segment has recorded net inflows of  $5.3 billion in both the March and June quarters of the current calendar. Moreover, the segment saw a turnaround in 2023, recording net inflows of  $11.98 billion, from the net outflows of  $900 million in CY22 and  $3.5 billion in CY21.

Similarly, the offshore fund ETFs segment received net inflows of  $4.1 billion ---- the highest quarterly net inflows ever recorded ---- in the June quarter of CY24 compared to $3.7 billion in the previous quarter of the same CY.

According to the report, robust net inflows and a strong rally in the Indian equity markets drove the asset base of the India-focused offshore fund and ETF category to swell by 42 per cent to  $102.3 billion from $72.2 billion in December 2023.

Moreover,  the value of investment into Indian equities in regionally diversified funds--foreign funds that have a partial allocation to Indian equities --- also surged to an estimated  $369.3 billion as of June 2024 from $312.7 billion at the end of December 2023, registering an increase of 18.1 per cent. This is the highest-ever allocation to Indian equities in the portfolios of regionally diversified funds.

The report noted that the trajectory of future flows will likely be influenced by global factors such as inflation trends, global economic growth outlook, and decisions by the US Federal Reserve regarding interest rates. Geopolitical tensions, including the ongoing conflicts between Russia-Ukraine and Israel-Hamas, as well as the economic scenarios in the US and Europe, will also play critical roles.