Elara Capital: Foreign flows in India lagged China by 10%; ETFs shows the way

Foreign inflows into India are showing early indications of slowing down. A study by brokerage firm Elara Capital states that total inflows of $144 million (Large + Mid+ Small) into India-designated funds are at their lowest level since May 2023.

According to the data, India’s foreign inflows have lagged China by more than 10% since the high, marking the biggest difference since October 2022.

“India has underperformed China by 10% from the peak, largest since Oct’22 period. This could be another trigger for liquidity shifting back into China for some time,” the brokerage firm mentioned in its report.

“After record inflow of $56bn in the US last week, we saw flows cooling off with outflow of $22.6bn. US Smallcap flows continue to show strong momentum since the beginning of 2024. EM flows have remained relatively soft since the past few weeks not showing any significant trend,” the report added.

The research claims that the main cause of the slowdown in India is the significant $256 million outflow from funds domiciled in Luxembourg, while inflows from funds domiciled in the US and Japan also decreased by 55% to 65% from usual levels.

The first redemption of $184 million was made from India-specific long-only funds in a year.

India continues to lead in ETFs

The Elara report stated, “Only place where India flows remain relatively strong was in ETFs”.

This sparked a madness in the Midcap and Small spaces. In the SMID market, foreign liquidity is currently drying up, which could slow down the price trend. It stated that it is necessary to closely monitor how domestic liquidity develops going forward.

Indian Midcap funds have previously seen large inflows in the years 2014–2015 and 2017–2018.