Foreign investors are cautiously returning to Indian equities after redemptions from India-focused funds bottomed out, says Cameron Brandt, Director of Research at EPFR Global. Diversified emerging-market funds are also offering some support, with India's allocation among active managers showing signs of stabilising.
Brandt says the broader AI-driven enthusiasm in Asian markets has cooled in some of the region’s frothier markets, but interest in AI remains intact. At the same time, flows into physical gold funds have picked up again, supported by Chinese buying and concerns that major central banks could fall behind the curve on inflation.
This is an edited transcript of the interview. Q: For the Indian markets in July and so far in August, we've seen a trickle of foreign institutional investor , foreign portfolio investment inflows into the equity markets. Is the data at EPFR supporting this evidence?
What are your numbers telling you? A: The numbers are showing that certainly the redemptions have bottomed out and that foreign investors are starting very cautiously to look at Indian equities again. But it's sort of a one step forward, two steps back kind of pattern at the moment, and the sort of sentiment really hasn't coalesced around getting back into India in a meaningful way.
Q: But this cautious investing into the Indian markets by foreign investors, is it a part of the broader emerging market portfolio? Are we seeing an increased weightage as money is flowing into EMs or is this India dedicated? Where is this money? What's the origin of this money?
A: The foreign money is certainly going to dedicated India funds. But we're also seeing a more consistent pickup in flows into the diversified global emerging markets equity funds. And those, usually, on average send 8-9-10% of the fresh money they get to India.
So, there's very cautious support through the dedicated India fund channel and a bit more of a pickup through the diversified global emerging markets funds. Q: What's India's weightage in the diversified emerging market funds now? How has it changed compared to the start of the year and perhaps in the last 2 months?
A: It has ground lower, but again, it has shown signs of bottoming out. Obviously at the beginning of last year, India was riding high, and the average allocation was at record highs, so it's come down a fair bit. But it seems to be, as with the flows, bottoming out, certainly among active managers, which is what we would regard as the more compelling clue to sentiment.
Watch the full conversation hereQ: Your data also says that redemptions from SK Hynix-related funds have hit a record high since EPFR started tracking the funds in late 2024. This is a group of all the funds that invest in SK Hynix. And even Taiwan, for instance, has also seen two consecutive weekly outflows.
This has again not happened in a while. Has the froth come off the Asian market inflows? Some numbers here? A: Yes, I think it has. We also saw the first outflows from Taiwan-dedicated funds in a while. But, interest in artificial intelligence is far from dead.
In the Asian context, we're seeing some of it migrate to smaller, less frothy, as you put it, markets. Dedicated Philippine equity funds have been doing very well recently, and that is in part due to the fact that, though it doesn't get much publicity around a fifth of that equity market, the market capitalisation, is attributable to companies that certainly bill themselves as AI plays.
So, the froth, yes; broad interest in AI, no. Q: What about gold? China has returned back to the buying basket with regard to gold in the last few months, if I look at it. The tonnage has been moving up. What is the flow picture into gold, because that's given a good 15% move from sub-$4,000, close to around $4,700, backed by flows?
A: Yeah, backed by flows. The physical gold funds that we track, flows bottomed out there for a while. Bottomed out is probably the wrong way of putting it, but they certainly leveled off in June and July. But they've really taken off again. Chinese buying is obviously helpful, but a persistent worry that some of the major central banks, including the Fed, are repeating the post-COVID mistake in getting behind the curve on inflation is also helping.
And we've seen an equally solid pickup in flows to cryptocurrency funds as well that, from what we hear, is certainly tied to this fear that inflation could start to accelerate and the Fed might have to act with more aggression later in the year or early next year.
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