Despite reluctance of FIIs to give up on China story, India remains an attractive bet

Cameron Brandt, Director of Research, EPER Global

India continues to attract steady investment inflows and dedicated India funds have been second only to China funds in the emerging markets universe in terms of attracting fresh money.

That’s the opinion shared in an exclusive discussion with CNBC TV18 by Cameron Brandt, Director of Research at EPFR Global, on the trends in fund flows to emerging markets.

He had expressed similar views in an earlier interview a couple of months ago when he suggested that Indian stock markets are seeing more amount of interest from global funds.

“Certainly I continue to think that that's a likely trend and India will continue to attract funds because many of the forecasts in the developed world, especially Europe, for the end of the year and into the next year make somewhat gloomy reading, so a large market with a strong domestic demand story and the promise of 7 percent growth is very attractive at the moment.” he said.

Brandt is of the opinion that the current fund flows are not completely driven by Exchange Traded Funds (ETFs)  and there's been a reasonable amount of money coming in through mutual funds. Despite the prevailing uncertainty and summer holidays in the Northern Hemisphere when trading is a little thin, the interest in India has held steady.

“The big diversified funds need to continue to find alternatives to their Russian exposure and India has certainly been capturing some of that money, but a large chunk of the FII (foreign institutional investor) money that has come to India has come via the emerging market funds,” Brandt said.

The trend of fund flows to India in the future will depend a lot on the election results in Brazil and also on the outcome of the Communist Party Congress in China in the fourth quarter of 2022.

“Those markets could certainly regain some of their lustre but I don't see much competition at the moment from any of what you might call the second tier markets and I think until those waypoints in Brazil and China are passed, India is likely to see pretty steady interest from the global emerging markets (GEM) fund managers,” he added.

Brandt says FIIs were cutting down on their exposure to China towards the end of last year and the beginning of this year but that reduction in exposure has now plateaued a little bit.

“What has been interesting has been the persistence of institutional flows into dedicated China funds with nearly $3 billion of funds flows into China last week,” he said.

Brandt sees a clear reluctance on the part of GEM fund managers to give up on the China story, and especially with this correction, they now see some value in that market.

But it is too early to say that there will be a large fund movement to emerging markets even though they are certainly holding up better than had been expected at the start of the year, he said.

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