Record Inflows into Indian ETFs in 2023: Optimism Amid General Elections
In 2023, Exchange Traded Funds (ETFs) tracking Indian stocks experienced a historic surge in net inflows, reaching $8.6 billion, surpassing the previous peak of $7.4 billion in 2021, as per Morningstar Direct data. Analysts remain optimistic about continued investor interest despite the looming general elections, set to take place by May.
The substantial inflows indicate investor confidence, with the approaching elections seen as a minimal political risk, contrasting with trends in regions like Taiwan and Argentina. While European investors pulled out from Taiwan-linked ETFs due to election uncertainties, Indian shares hit all-time highs, and foreign portfolio investors recorded record monthly equity purchases in December.
The $2 billion WisdomTree India Earnings ETF and the $7.9 billion iShares MSCI India ETF played a pivotal role, constituting over half of the global India-focused fund flows in 2023. These U.S.-listed ETFs provide foreign investors with easier access to Indian markets compared to the prolonged process involved in direct equity investments.
The surge in India-focused ETF inflows is not solely tied to the upcoming elections. Analysts emphasize a broader optimism regarding India’s economic progress, supported by a robust annual growth forecast of 7.3% for the fiscal year ending in March, the highest among major global economies.
Investors are increasingly turning to India to diversify their emerging markets portfolios, driven by concerns about economic growth in China and escalating Sino-U.S. tensions. As China’s growth rate slows, India emerges as an attractive destination for investment, according to Sammy Suzuki, Head of Emerging Markets at AllianceBernstein.
Despite the positive trends, Suzuki cautions about India’s high valuations, advising investors to focus on companies that can outperform expectations for sustained success. In 2023, inflows into India ETFs constituted a third of total investments in emerging market funds, according to Morningstar’s data.
As 2024 approaches, an election year, many anticipate a positive impact on Indian equities, projecting increased spending and the promise of continued economic policy stability. Malcolm Dorson, Head of Emerging Markets Strategy at ETF provider Global X, emphasizes the potential tailwind for Indian equities in the coming year.
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