September has been a good month of fund inflows for India. Net FII flows into India topped USD 1.25 billion for the month of September, making it one of the best months in recent times.
Brad Durham, managing director of Emerging Portfolio Fund Research, discusses how strong flows will be going forward.
He says that India dedicated funds have seen inflows of USD 600 million in the last quarter. According to Durham, HSBC, JP Morgan, Fleming, and Schroeder funds have seen the highest inflows.
He also says that the week ended September 27, saw inflows of around USD 100 million in India funds.
Excerpts from CNBC-TV18's exclusive interview with Brad Durham:
Dollar 1.25 billion of net money has come into India. From the universe that you track, which are the ones that have been actually bringing this money in?
It is interesting that in the last several weeks, more specifically in Q3, the India country funds we track, about 35 funds of about $15 billion in total assets have actually taken in about $600 million net inflows.
Now that doesn't sound like a big number, but it's relative to the outflows from emerging market equity funds in general, and from other fund groups such as BRIC funds, which have seen three consecutive weeks of net outflows.
It's really the dedicated India funds that are seeing strong amounts of interest right now. So in the last quarter, the Asia ex Japan funds as a whole have actually had outflows, while India funds have taken in about $600 million net inflows.
Which ones in specific stand out for India?
The bigger ones like HSBC India Fund have done pretty well. It's clear that investors are looking for more targeted exposure to specific emerging markets through dedicated country funds like India funds.
The so-called GEM Equity Funds have a little less appeal. I think this is probably just due to the current environment. Also, declining oil prices are helpful for India's current account situation and inflation.
For the India specific funds, which ones sold out the most in this past quarter?
I think it's the ones that have seen the biggest interest; HSBC India fund, Schroeder India fund, which is quite large, JP Morgan, and Fleming Asset Management, which runs quite a large India fund. Most of the funds, which have an excess of $1 billion in total assets, have been the ones that have been most attractive.
In this past week, what has been your experience or what have you seen in terms of India funds and in terms of BRIC funds by ways of inflows?
Last week was very interesting; the emerging market equity funds as a whole had outflows. We track about 15 of the BRIC Equity Funds, with about $10 billion and total assets, which had outflows of about $60-70-100 million.
India funds had inflows of $100 million. So along with the Greater China Funds and the China Funds, India and China, within the emerging market equity fund universe that we track, are really and certainly very attractive to institutional and retail investors.
But, I think there is also another story to be told. While investors are looking for very direct exposure to India, India is not really capitalising on another potential. There is an even bigger pool of assets, and that is in some of these large global equity funds.
These funds have actually been reducing their India weightages in recent months and even recent years. So the GEM Equity Fund weightage in India is down to about 4.9 per cent, that's down from about 7 per cent in 2004. This is its lowest since 2002.
Any observations on what the absolute return funds, what we like to call hedge funds, have been doing over the last few weeks specifically in these markets?
I think anecdotally we hear that they have a sizeable amount of cash to play with. We track a number of India specific hedge funds. There is one in particular - Singapore Domicile Fund- where the fund manager has actually moved from quite large short exposure to the Indian market, to try to reduce his shorts and go more long.
Now that is just one manager's anecdote, but I think it might be endemic for other funds that are perhaps seeing India as comparing favorably against other emerging markets. Markets like Brazil and Russia are more sensitive to commodity prices, with declining oil prices I think markets like India appear more attractive.
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