Global Liquidity Tracker: India is 2nd largest recipient of Foreign flows in CY23 By Elara Capital
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India is 2nd largest recipient of Foreign flows in CY23. Big shift out of China into India in the 2nd half
* India was in limelight among Global investors throughout CY2023. It was one of the biggest recipients of Global liquidity. $15bn was deployed by Global MFs into Indian equities (all into dedicated funds). Until Sep’23, inflows were stronger into Midcap funds, taking almost 40% of total India inflows. However, over the past 3-months, all foreign MF inflows into India remain large cap focused. In CY23- US, India & Japan have been biggest recipient of foreign flows. Outflows were seen across Europe. Barring India and US, foreign flows have already turned weak for most countries in 2nd half of CY23.
* Strong inflows into India dedicated funds continue over the past 3-weeks. This week, inflows of $270mn after $450mn & $524mn in the previous 2 weeks respectively. Again, almost all inflows continue to move into Large cap funds. Most incremental flows since Dec’23 into India have been from US domiciled funds. Foreign flows into China have remained weak in CY2023 with big redemptions beginning in the 2nd half. A big portion of this liquidity has moved to India. In CY23, the NAV of India has risen by 21% while China is down 16%.
* Among Global sectors, largest inflows in CY23 have gone to IT followed by Consumer Staples & Industrials. Energy and Utilities saw net outflows. Financials & Consumer Discretionary flows were inline average.
* Strong recovery in Global Bond flows continue. This week’s inflow of $14bn was largest since Apr’23. Strong recovery in Global Corporate bond flows continued. High Yield bonds also witnessing strong inflows since past 3-months. First time since Dec’20 (post COVID panic), the high yield bond spread over US-10 year has dropped below 4%. In past, this has been a sign of risk-on trade globally for some time.
* India’s allocation in GEM funds has reached back to previous high of 16.9% seen in Oct’22. This is also historic high allocation. It will be crucial to see whether FIIs continue increase allocation to India from hereon.
* Likewise, China’s allocation in GEM funds has dropped back to Oct’22 lows of 25.3%. The allocation discount of India over China has also reached closer to 30% zone which has been the least discount since 2008.
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