After China, India sees highest exodus by ETFs in August-September

ET INTELLIGENCE GROUP: Exchange traded funds (ETFs) withdrew $1.17 billion (Rs 7,641 crore) from Indian equities between beginning of August and first week of September, according to data from Bloomberg.

This is the second highest amount withdrawn by the ETFs invested in the emerging markets after China, where they pulled out $1.2 billion in the same period. ETFs have sold stocks worth $6.5 billion in emerging markets (EMs) since August. EMs are witnessing outflows for the tenth week in a row.

Funds pulled out from the Indian equities accounted for nearly 20% of the total stocks sold in EMs as illustrated in the accompanying chart.

Foreign portfolio investors (FPIs) have sold $3.1 billion worth of Indian stocks over August and the first week of September. This means ETFs selling is accounted for more than one-third of the total amount pulled out from Indian equities.




The redemption pressure in ETFs can be gauged from the fact that India-based large ETF, Wisdom Tree’s total assets fell by 33% to $1.6 billion while iShares MSCI ETF assets dropped by 15 per cent to $3.3 billion. Lyxor ETF India’s assets were reduced by 24 per cent to $1.37 billion between August and the first week of September.

The appetite to own risky assets such as EM equities is drying up among global fund managers as the prospect of a rate hike in the US is making them risk-averse. "ETFs enter emerging markets based on the macro call taken. ETFs being sector-agnostic, are the first to wind down their exposure whenever they find a threat to the broad call. This is why ETFs are trimming their exposure to Indian market," said UR Bhat, Managing Director at Dalton Capital.