ETF share in Indian stocks up to 27%

MUMBAI: The share of investments of exchange trade funds in India’s equity markets has increased to 27% in the past four weeks compared with an average investment of nearly 10% in the total foreign assets under management amid growing interest of investors in the emerging markets.

ETFs have deployed nearly a quarter of the $2.4 billion (about Rs 16,000 crore) invested in India by the foreign funds as of March 21, according to data compiled by Bloomberg. These funds have invested $6.7 billion in emerging markets between March 1 and March 21 and of this, nearly 10% has been invested in India.

In the past four trading sessions, Nifty saw a sharp rebound in the last hour of trade, indicating buying by ETFs as these funds invest in index stocks in proportion of their respective weightage in the index. Two big India-focused ETFs, iShare MSCI and Wisdom Tree witnessed net flows of more than $200 million in the past four weeks. Wisdom Tree ETF was under redemption pressure in the past six months and its AUMs shrank one-third during this period.



Data shows that the increasing share of ETFs has been a key reason for indices staging a sharp recovery in the last hour of trade. Given that ETFs are like mutual fund units which are sold in foreign exchange and their underlying security is in the Indian market, in order to minimise the gap between the traded unit in the overseas market and local exchange, ETFs often buy in the last hour of the trading session in the Indian market.

ETFs are passive funds which invest in index stocks in proportion of their respective weightage in the index. Typically, the increasing share of ETFs in foreign flows means higher volatility. ETFs enter emerging markets based on the macro call taken on the market and their investment style is sector-agnostic. Hence, when their broad calls seem ineffective, they are the first to wind down their exposure.