There is lot of interest in rolling out debt ETFs
The 17 exchange traded funds (ETFs) linked to the Nifty 50 have crossed Rs 1 trillion in assets. In August, ETFs reported net inflows of Rs 1,700 crore, even as outflows from equity schemes spiked to a 10-year high, underscoring investors’ steady appetite for ETFs. In an interaction with Jash Kriplani of Moneycontrol, Mukesh Agarwal, chief executive officer of NSE Indices, shares his views on new ETF products and debt market challenges. Excerpts.
Index-based investing is gradually gaining traction in India, both on equity and debt sides. What are some of the indices you are working on, to give investors more options?
Today, there are 63 exchange traded funds (ETFs), tracking 26 Nifty indices, with combined assets of around Rs 1.6 trillion. We always look for innovative ideas that can offer more choices to investors. We recently rolled out the Nifty 200 Momentum 30 Index, which is a strategy-based index that identifies stocks with high momentum within the Nifty 200 Index. One fund manager is looking at launching an ETF linked to this index. A couple of months back, we rolled out the Nifty 100 ESG Sector Leaders Index, which seeks to identify companies that have scored well in managing Environment, Social, Governance (ESG) risks. The index selects 48 ESG leaders within each sector from the Nifty 100 Index. An asset manager is also planning to launch an ETF, using this ESG index. So, we continue to look at launching products that are relevant for markets and which can be replicated by asset managers.
Are you planning to launch any indices on the debt side?
After the launch of the Bharat Bond ETF, which uses the Nifty Bharat Bond Index, there has been a lot of interest towards launching debt ETFs. We are in talks with industry players and are also exploring multiple things within this space. As new ETFs come into the markets, we should see further improvement in liquidity in the debt markets. Today, the combined asset size of the four ETFs tracking the Bharat Bond Index is around Rs 25,500 crore.
Other ETFs such as smart-beta products and sectoral ETFs are seeing traction, but are yet to catch-up in the same manner as Nifty-linked ETFs. What could be done to improve growth in this segment?
Retail investors will take some time to understand strategy-based products. Initially, investors would look at the basic set of ETFs that are linked to popular Nifty indices such as the Nifty 50. Even globally, factor-based ETFs are not yet a large part of the overall ETF market. Of the $7 trillion ETF market, $0.8 trillion of assets are linked to factor-based products.High impact costs, and tracking errors have been common concerns when it comes to ETFs in India. How do you think this can be addressed?
Not all ETFs face the issues of high impact costs and tracking errors. There are some ETFs where there is limited liquidity, and these issues can crop up. However, the entry of more participants should take care of that. We are also seeing improvement in trading volumes, which should lead to better liquidity.