Latin America, Russia to see further outflows: Quant Cap

A: The debt funds attracting inflows is a global phenomena as you mentioned. Across regions we have seen inflows picking up on the debt side whereas on the equity side it’s completely different picture, emerging market funds have been seeing outflows for consecutive eight weeks and in these eight weeks we have seen outflows to the tune of close to USD 18 billion, in excess of USD 18 billion from emerging market equity funds. On the emerging market front, we have seen small outflows but I would not be alarmed by those outflows at the moment but interestingly European bond saw inflows for the first time since last October this week, week ending January 7 to the tune of USD 1.5 billion. So it was interesting to see that European bond seeing inflows at this point in time before the European Central Bank (ECB) monetary policy meet on January 25.

Latha: What is this telling you, if there is so much of debt inflow that there are fresh question marks on global growth? What should we infer from these inflows into debt?

A: There are no question marks. I see that 2015 should be much more easy than 2014. We saw enough of thrills and spills in 2014 and that would continue in 2015 but the lower oil prices, the euro depreciating in front of dollar index to 1.17 and Greek elections which are going to happen on January 22, these are the reasons why the European bonds are seeing inflows. On the other hand, on the US side investment grade bonds have been seeing inflows, they saw inflows throughout 2014, they are still seeing good inflows in 2015 in the first week of the year. There has not been a major shift in trend when we look at the bond flows globally. The only major shift that happened during the last four-five months has been the outflows from the high yield bonds which picked up substantially in the last quarter of 2014 but we still see the continuation of the trend that we saw in 2014. As an investment grade, seeing lot of inflows, developed market equity fund seeing lot of inflows and outflow from emerging market equity funds.

Ekta: If you had to map out how India is doing vis-à-vis other emerging economies, when it comes to equity outflows, which you have seen in the past eight consecutive weeks, where would India rank?

A: We have been the best of the worst in the last eight weeks, so the amount of outflows that we saw was little less than USD 1 billion in the last eight weeks but India specific fund have seen marginal inflows. On the aggregate basis we are seen outflows but India specific funds are still attracting inflows. The way I am looking at the Indian market is that any global investor will try to invest in an economy where domestic growth drivers are in place. India is a country where currently we are seeing that the domestic growth drivers are in place, we are net importers of commodities, so that is also helping us. Therefore, countries like India, Indonesia, South Korea, Taiwan, China are the countries which will benefit a lot in the current context.

Latha: We were told that a lot of investors, funds have lost money in commodities because of rapidly unexpected or unexpectedly rapid fall in the last six months – that money will be made up by selling something else. What do you think will see outflows in the next two months and inflows in the next two months?

A: Within emerging markets you will see outflows from Latin American funds, so the overall allocation within emerging market has hit all time low and outflow from Russia has been strong for the last couple of months, so outflows would definitely be from Latin American funds from weaker European equity funds and this money will flow into Asia, so 2015, if you look at the Q1 of 2015, Asia would be in focus and when I say Asia, it will be the Asia ex-Japan emerging market countries that will see inflows and India should be the top pick of investors given the macro conditions and political conditions that are prevailing in the country at the moment.