FPI fund inflow dips in India

Foreign portfolio investments into domestic equity markets showed signs of slow down over the last one-month as emerging market equity funds witnessed net redemptions on account of growth concerns in China and India.

Although the US Federal Reserve met investor expectations following its September 20-21 meeting by keeping interest rates on hold, EPFR Global-tracked emerging markets equity funds recorded their first outflow since the final week of June as redemptions from two of the major regional groups offset modest flows into Latin America and the diversified global emerging markets (GEM) equity funds.

According to Emerging Portfolio Fund Research (EPFR), that tracks global fund flows, Asia excluding Japan, equity funds recorded the biggest outflows among the regional groups as over $100 million was redeemed from both China and India Equity Funds.

The net investment made by overseas investors in domestic equities in September dropped to Rs 5,643 crore as compared to Rs 12,612 crore and Rs 9,071 crores of net buying witnessed in July and August respectively.

In the case of China, EPFR noted that fresh warnings about the risks of relying on credit to fuel growth have trumped some solid macroeconomic numbers while India, despite progress on internal tax harmonisation and decent monsoon rains, saw economic growth lose momentum during the third quarter.

However, it added that both the Chinese and Indian equity markets continued to enjoy strong support from diversified emerging markets funds serving institutional clients.

In the developed markets, US-focussed equity funds posted outflows for the third straight week.

Investors pulled out $7 billion from US equity funds in the week ended September 21, which was the highest weekly outflow in the last 12 weeks.

While the US Federal Reserve’s decision to keep interest rate steady in its September meeting came as a relief, EPFR said the positive sentiment was tempered by the minority vote in favour of an immediate hike and language in the post-meeting release, which signalled a rate hike by the end of this year.