MUMBAI: Redemption from India-focussed offshore funds by foreign investors in May was the highest monthly outflow in a year as hazy economic prospects amid the falling rupee and slow policy decisions prompted them to pull out of India.
Rating agency Standard & Poor's move to cut India's sovereign outlook to 'Negative' from 'Stable' in the last week of April hastened investor withdrawals worth $370 million from these funds in May, after pulling out $334 million in April.
In February and March (before the S&P re-rating), these funds logged inflows worth $393 million and $14 million respectively, data from fund tracker Morningstar shows
"Sluggish growth, huge trade deficit, rupee depreciation, possibilities of lower FDI accrual this fiscal, unclear taxation laws and slow progress of large projects have not gone well with foreign investors," said UR Bhat, managing director of Dalton Capital Advisors, which advises several foreign investors on their India portfolios.
For most of the larger funds, outflows picked up in the month of May. HSBC GIF Indian Equity, which saw an outflow of $123 million in May, compared with an outflow of $61 million in April. Another foreign fund, Mathew India Investor, shed about $25 million during the month while Fidelity India Focus and JF India Fund lost $32 million and $73 million respectively.
Lyxor, Powershares India and iShares S&P India are among exchange traded funds (ETFs) that lost significant sums of assets over the past two months.
"The fact that bad news keeps piling up and the ratio of bad news to good news is so high, investors have obviously switched off from India," said Samir Arora, fund manager at Singapore-based Helios Capital Management.
The outflow of money, according to overseas asset managers, is much higher from offshore debt funds, many of whom are seriously concerned about the credit-worthiness of the Indian government. Foreign investors with direct exposure to Indian debt have withdrawn over Rs 10,000 crore in March and April.
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"Downgrade concerns must be hurting offshore debt funds more than equity funds. Changes in sovereign ratings are taken in more seriously by offshore debt managers," Bhat said. (curtsey: economic times)
Rupesh Yatesh Dalal
Head Research Department
Head Research Department
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