>Europe-domiciled offshore India equity funds , which constitute over 90% of the overall India-focused offshore fund pie, continue to record bumper inflows, with the segment recording investments worth 24.32 billion in 2010.
Firm equities markets in the first nine months of 2010, coupled with robust long-term growth and diverse sector play, prompted foreign investors to park their money in India-focused equity funds, analysts at Morningstar said.
“Europe-domiciled India funds logged a 42% rise in investments in 2010. They’re investing in Indian shares seeing good future prospects,” Dhruva Raj Chatterji, senior research analyst, Morningstar India, told ET.
While European investors loaded their portfolios with emerging market funds, several Japanese investors redeemed their money from the region. Indian funds were the worst impacted as Japanese investors redeemed investment worth $2 billion from offshore pools investing in Indian companies.
Total net assets of India offshore funds in Japan shrank by about 13% in 2010, to close the year at ¥737 billion. The total assets of these India offshore funds in Japan have almost halved from their peak of ¥1,400 billion at the end of December 2007.
“Japanese investors have been redeeming equity investments across markets. Portfolio investors in Japan are shifting their investments from equities to emerging market bond funds and high-yield bonds,” Mr Chatterji said.
One of the main reasons for Japanese investors exiting Indian funds was the appreciation of the yen vis-a-vis the rupee. The yen has appreciated 10% against the rupee over the past few months, which resulted in the underperformance of several India-focused funds. Nomura India Equity from Japan recorded the biggest net outflow of ¥ 22.97 billion in 2010. In all, only three of the 27 offshore India funds in Japan registered a positive inflow during the year.
Among other funds, HSBC GIF Indian Equity, the largest offshore India fund from Eurozone, registered an estimated net outflow of euro 285 million in 2010. The fund was a bottom quartile performer within its peer group during the year. Franklin India recorded the largest inflow of euro 338 million in 2010, and its assets base grew 90% during the considered period.
Despite the 30-share Sensex gaining about 17% in 2010, Indian markets underperformed emerging market peers such as Indonesia, Thailand, Malaysia and the Philippines. The top performing offshore India fund in 2010 was Aberdeen Global Indian Equity D2, which is the second-largest offshore India fund (with assets of $4.66 billion as of December 2010). The worst performing fund was Japan-domiciled HSBC India Infra Equity Open, which fell 12% during the year.