Indian markets continue to attract investment, though at a slower pace, with $317 million in inflows last week. Overall flows into India over the past five weeks have slowed to one-third of the rate seen since January 2024, according to EPFR fund flow data analyzed by Elara Capital Quantitative and Alternates.
"Pressure has started building on India Midcap funds, which saw their 8th consecutive week of outflows totaling $270 million. Last week’s redemptions amounted to $60 million," the report stated.
Elara Capital highlights a shifting trend in the momentum of flows from Japan into India, with a gradual shift from India Midcap to Largecap funds.
"Until now, we haven’t seen significant pressure from yen carry trade unwinding in both the U.S. and India. The primary impact has been a slowdown in momentum of flows from Japan into India, along with a gradual shift from India Midcap to Largecap funds," the report said.
Japan's allocations to Indian capital goods stocks have risen sharply, reaching 2015 highs. The JPY-denominated allocations increased from 4.3 percent in January 2021 to 10 percent in August 2024, according to the report. "The INR/JPY exchange rate is now approaching a key support zone, which corresponds to the weighted average rate at which these flows have entered India."
The Yen Carry Trade is a popular investment strategy where investors borrow Japanese yen at low interest rates and invest the proceeds in higher-yielding assets, such as U.S. Treasury bonds or other higher-yielding currencies.
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