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Morningstar Advisers India: FIIs cautious towards India, staying on the sidelines: Himanshu Srivastava, Morningstar Advisers India

The outflows are more from India focussed offshore funds compared to India focussed ETFs, Himanshu Srivastava, Senior Research Analyst, Morningstar Advisers India, tells ET Now.

Edited excerpts:

You track inflows, outflows very closely. In September, we have seen almost Rs 9,000 crore exiting as FPIs turned net sellers in September, as against being buyers in July and August. What went wrong in September?

In July and August, there were net inflows but the quantum was very small. In the past, when FIIs came in with full conviction, the quantum tended to be higher than what was in the month of July and August. This indicates that there was a fair bit of uncertainty and cautiousness among foreign investors when it came to investing in India.

In September, we have seen net outflows from FPIs. That was not unexpected as you can see FIIs have been focusing on the economic growth prospects of India which is not very clear in the current macro environment what we are seeing. So we are seeing widening current account deficit due to surging crude prices, depreciating currency and we have seen global trade war between US and China, definitely impacting not only India but other emerging countries as well.

On the macro front, India does not look too good from the FII perspective and that is where they have been adopting a cautious stance on India and pulling out money in September. Things escalated in September largely because of higher crude prices, rupee depreciation, weakness on macro front and also the trade war between US and China has escalated over a period of time and that is not auguring well for India and other emerging markets.

Given the fact that emerging markets are riskier compared to their developed counterparts, FIIs are adopting a cautious approach and staying on the sidelines to get more clarity. The factors that we are discussing are moving factors and they can change from positive to negative for India and that is what we have seen in July and August where there have been a fair bit of positiveness in terms of macro given that the GDP numbers showed a positive trend and we have seen some inflows coming in. But again they turned negative in September and we are seeing FIIs moving out of the country. This is the trend that we have been seeing this year so far. It is a dynamic trend and is going to continue for some more time.

Forget gold, the new safe haven globally seems to be the US dollar. Our equity markets may as well brace for the fact that FPIs going forward will continue to be net sellers. They all seem to be relocating their portfolios and money towards the dollar. Is this trend here to stay?


There has been a reallocation and there is no doubt that investors are moving out of Indian equities. What we are also seeing in the offshore space is that India focused offshore funds and ETFs are also seeing outflows since February. Till August, there had been a net outflow of around $3.7 billion. This year, January was the only month when India focused offshore funds and ETFs received net inflows. Since then, there has been net outflows and that too from India-focused offshore funds which are considered to be long term in nature. The outflows are more from India-focused offshore funds compared to India focussed ETFs.

We are seeing dollar getting appreciated and obviously gold is also a safe haven as the dollar is. Whether this trend will continue depends on macro factors which will domestically impact India. If India has a better domestic environment, we may see the FIIs coming back to the Indian equity markets. But there has to be more clarity and sustainability of economic growth rather than just one odd number showing positive trends.

Where FIIs are concerned, they are not seeing too much prospect of the sustainability of economic growth and that is where they are staying on the sidelines when it comes to investing in India. This trend may continue for some time unless until there is more clarity. We are entering into an election season. There is anticipation that there will be increased volatility in the market and FIIs will also want to get clarity on the election front as well.




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