/dhanam-english/media/media_files/bn8d1iVjew725Py2sViH.jpeg)
Foreigners are pulling out their funds from China and re-routing to India.
Indian markets have emerged as one of the largest recipients of foreign liquidity globally, attracting inflows amounting to $15.75 billion in the calendar year so far. Alongside India, the United States and Japan have also been major beneficiaries of foreign liquidity in both 2023 and 2024. Conversely, the largest outflows in 2024 have been observed from China, Brazil, Taiwan, Mexico, Vietnam, and Indonesia.
One-fifth of global funds
India’s allocation in Global Emerging Markets (GEM) funds reached 20% as of June from a low of 8.5% in March 2020. Around the same time, China’s allocation has dropped from a high of 40% to 23%. Currently, India’s allocation in GEM funds is just marginally below China’s allocation, a trend seen for the first time since 2006. Inflows continued across global markets. US Small-cap flows are showing strong recovery over the recent weeks, the brokerage firm's report said.
Emerging Market inflows also remain strong at $4.5 billion but slowed down from $11 billion in the previous week. Most strength in EM flows is due to strong inflows by domestic investors in China.
On the contrary, foreigners are using this liquidity to dump stocks aggressively. Since March 2023, foreign funds have pulled out $29 billion from China and deployed $27 billion into India, according to the report. “India continues to be the biggest beneficiary of China’s weakness, and the shift has accelerated post-Lok Sabha election results. This trend can reverse once we see recovery in the Chinese economy,” said a report by Elara Capital.
IT is the favourite
Meanwhile, foreign funds have also been selling from Taiwan and Korea since May 2024. According to the report, the incremental foreign allocations are only visible in the US and India.
Among Emerging Markets sector funds, IT continues to see strong inflows. Financial flows showed some recovery a few weeks back but not sustaining, and redemptions have again resumed. Consumer goods funds had seen a good recovery in June and July, but trends are consolidating there, according to the report.
