India Fund Flows Tell Diverging Stories

August 29th at 9:15am by Tom Lydon

During Wednesday’s Asian trading session, the Indian rupee experienced its worst one-day slide in two decades. The rupee has plunged 17% this year, making it one of the worst performers in a graveyard littered with slumping developing world currencies, but that has not chased foreign investors out of Indian stocks to the degree that some might suspect.

Foreign investors sold $86.1 million worth of Indian stocks on Tuesday, but stocks in Asia’s third-largest economy have still attracted year-to-date inflows of $11.8 billion, reports Rajhkumar K Shaaw for Bloomberg.

Sticky foreign assets in Indian equities has not helped U.S.-listed India ETFs skirt savage punishment. Over the past month, six India funds can be found among the 10 worst-performing non-leveraged ETFs listed in the U.S. [India ETFs Dive as Rupee Hits Record Low]

That list includes well-known products such as the iPath MSCI India ETN (NYSEArca: INP), the PowerShares India Portfolio (NYSEArca: PIN) and the WisdomTree India Earnings ETF (NYSE: EPI). India ETFs have surpassed their Brazilian brethren to become the worst-performing funds offering exposure to the BRIC nations. [India ETF Lowest Since 2009 on Rupee Plunge]

“Despite the uncertainty of growth in India, equity positions have remained sticky, possibly a reflection of investors’ comfort with some of the larger, defensive, high ROE companies in that market. Weightings in Malaysia, often considered a generally defensive market, have also increased,” said HSBC in a research note posted by Barron’s. Net fund outflows from India this month amount to $300 million, Barron’s reported. 

While foreign investors have mostly stuck by Indian stocks this year, the same cannot be said of the aforementioned ETFs. Investors have pulled over $171 million combined from EPI, INP and PIN since May 22, according to IndexUniverse data. Over the past month, the story is somewhat different as EPI has seen inflows of nearly $72 million while INP has lost $37.5 million.

The Indian economy is weaker, growing 5% in the year ended March 31, its slowest pace in a decade. That is one of the known, obvious problems facing the Indian economy. However, the widening account deficit, exacerbated by the sliding rupee and a government some observers view as impotent in fighting the currency’s slump, serve to elevate the risk associated with Indian stocks.

Last week, Fitch Ratings said India is not at immediate risk of a credit downgrade, but the ratings agency cautioned it could act if the country does not move to assuage skittish financial markets. Fitch currently rates India BBB-, the lowest investment grade.

WisdomTree India Earnings ETF

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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