Morningstar Offshore Fund Spy report for the quarter ended March 2026
The quarter marked a meaningful shift in the narrative surrounding Indian equities and foreign investor sentiment. After a prolonged period of strong performance and elevated valuations, Indian markets entered a phase of correction and recalibration amid heightened geopolitical tensions, global macro uncertainty and persistent selling from foreign institutional investor.
Against this backdrop, this edition seeks to provide a comprehensive perspective on –
1. How offshore investors positioned themselves toward Indian equities during this evolving environment.
2. Estimated flows, asset trends and performance across India-focused offshore funds and ETFs.
3. Allocation shifts within broader global, emerging-market, and Asia-focused strategies that maintain exposure to India.
In an increasingly interconnected market environment, understanding offshore sentiment has become important not only for market participants and advisors, but also for policymakers, fund houses, and institutional investors assessing the broader direction of capital flows into India.
Takeaways from the report:
A. Assets and Flows of India-Focused Offshore Fund and ETFs
* India-focused offshore fund and ETF category witnessed net outflows of USD 5 billion during the quarter ended March 2026. The pace of outflow increased sharply from the previous quarter when the category witnessed net outflow of USD 1.8 billion.
* Among the two segments of the category, while India-focused offshore funds experienced a net outflow of USD 3.5 billion during the quarter, India-focused offshore ETF experienced a net inflow of USD 1.5 billion.
* Given the net outflow and correction in the Indian equity markets, the asset base of India-focused offshore funds and ETFs too decline by 19.5% to USD 77 billion from USD 95.7 billion in the previous quarter.
* Among the 10 largest India-focused offshore funds and ETFs, iShares MSCI India ETF continued to retain its leadership position, with assets under management of USD 6.7 billion. However, it also recorded the sharpest decline in assets among the top 10 funds, with assets falling by 29.6%.
B. Performance of India-Focussed Offshore Funds & ETFs
* The Indian equity markets witnessed a sharp correction during the quarter. While the BSE Sensex fell by 15.5%, BSE Midcap declined by 13.6%. The small-cap segment was the worst hot with BSE Smallcap Index recording a loss of 16.1%.
* Consequently, India-focused offshore funds and ETF category also fell by 17.6% during the quarter but outperformed the MSCI India USD Index, which delivered a negative 18.1%.
* The category has underperformed the index over one- as well as three-year periods.
C. Asset Flows Into Indian Markets From Funds With Partial Allocations
* Asia/Asia-Pacific funds and global funds witnessed a decline in their asset base during the quarter, while emerging-market funds bucked the trend and recorded growth in assets.
* The value of investments allocated to Indian equities declined across all three categories of regionally diversified equity funds and ETFs. Their combined allocation stood at approximately USD 317 billion during the quarter ended March 2026, marking a sharp decline of nearly 16% from USD 378 billion in December 2025.
* While global funds and emerging-market funds remained net buyers of Indian equities during the quarter ended March 2026, Asia/Asia-Pacific funds turned net sellers.
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