On average, Emerging Market-dedicated active funds are 3 percent overweight India due to being underweight China and Taiwan.
Notwithstanding the heavy foreign institutional investor (FII) outflows from Indian equities in June, active emerging market funds have been steadily upping their exposure to India since December 2012, says a note by brokerage house Kotak Securities.
Foreign funds net sold over Rs 11,000 crore of Indian shares in June, mainly due to concerns over a cutback in the Federal Reserve’s monetary stimulus and a falling rupee.
"Allocations to India by Asia (excluding-Japan) funds inched lower in May 2013 (to 10.6 percent from 11.2 percent in April 2013) but the relative dominance of emerging market-focused active funds in 2013 (year-till-date) resulted in increased exposure to India," said the Kotak note.
"The fund-weighted exposure to India by all Global Emerging Market funds (ETFs and non-ETFs) increased to record levels of 9.4% (from 8% in September 2012) predominantly due to active fund preference for the region. On average, EM-dedicated active funds are 3 percent overweight India due to being underweight China and Taiwan," said the Kotak note.
According to the brokerage, exchange traded funds (ETFs) tracking the MSCI EM Index cumulatively saw outflows of USD 14 billion over the past 12 weeks, with most of the redemptions being enforced in June 2013 (USD10 billion). Yet, ETFs benchmarked to the MSCI India Index and the Hang Seng Index logged net inflows amid the carnage.
The brokerage says that India can benefit if incremental inflows prefer active investment to passive investment.