India was one of the biggest recipients of global liquidity in 2023. Around $15 billion was deployed by global mutual funds into Indian equities (all into dedicated funds), according to a report by Elara Capital.
"In CY23- US, India & Japan have been the biggest recipients of foreign flows. Outflows were seen across Europe. Barring India and US, foreign flows have already turned weak for most countries in the second half of 2023," said Sunil Jain of Elara Capital.
As seen in the above table, the US, India, Japan and Hong Kong were the largest recipients of global flows in 2023. China came in at the fifth spot, followed by Brazil and Mexico.
Up until September 2023, inflows were strongest into the mid-cap funds, accounting for almost 40 per cent of the total India funds. However, over the past three months, all foreign MF inflows into India remain large cap-focused, revealed the report.
Strong inflows into India-dedicated funds have continued in January 2024 too. This week, Indian equities have seen inflows of $270 million after $450 million and $524 million in the previous two weeks, respectively.
"Again, almost all inflows continue to move into large-cap funds. Most incremental flows since Dec’23 into India have been from US-domiciled funds. Foreign flows into China have remained weak in CY2023 with big redemptions beginning in the second half. A big portion of this liquidity has moved to India. In CY23, the NAV of India has risen by 21 per cent while China is down 16 per cent," said Jain.
Among global sectors, the largest inflows in CY23 have gone to IT followed by Consumer Staples and Industrials. Energy and Utilities saw net outflows.
The report also noted that India’s allocation in Global emerging market (GEM) funds has reached back to the previous high of 16.9% seen in October 2022. This is also a historically high allocation. It will be crucial to see whether FIIs continue to increase allocation to India from hereon. On the other hand, China’s allocation in GEM funds has dropped back to October 2022 lows of 25.3 per cent, noted the report.
"The allocation discount of India over China has also reached closer to 30% zone which has been the least discount since 2008," said Jain.
By Sunainaa Chadha