Domestic passive funds accelerating
Share of overall passive AUM in Indian market capitalization has risen to ~3.4% from ~3% a year ago, with domestic passive funds contributing majorly to this growth. Compared to August 2021, passive AUM for FIIs has increased by about 8% to $64 billion (~10.6% of total FII Equity AUM in India) in August 2022, while domestic funds have seen a bigger jump of ~29% to $53 billion (~17.7% of domestic equity MF AUM).
Fund flows resilient
Despite the big sell-off by FIIs during the last year, where active FII money has seen outflows of $14.4 billion/$24.5 billion in CY21/CY22YTD in secondary markets, passive FII money has actually seen inflows to the tune of $7.3 billion and $1.6 billion in CY21/CY22YTD. Fund flows for domestic passive funds remain strong as well, with $9.6 billion/$7.4 billion of inflows in CY21/CY22YTD representing ~28%/24% of total domestic equity MF flows. Even in years of equity sell-offs, passive funds have continued to see inflows. Hence, domestic-to-FII passive flow ratio is 4.6x.
Funds with major market share
Amongst foreign funds, Blackrock has consistently increased its exposure in India and holds almost 50% of the FII ETF AUM in India. Of Blackrock’s total AUM in India, almost 20% comes from its India dedicated ETFs. Within domestic funds, SBI MF continues to remain the leader with 55%, while Nippon MF has also been gaining market share recently.
Passive funds have positioning hit ahead of index inclusions/exclusions
Analysts at IIFL Capital Services observe that inclusion in Nifty creates good outperformance from stocks relative to both Nifty and relevant sector indices up to the date of inclusion. However, most stocks have then underperformed post inclusion. Similarly, exclusion creates underperformance, which tends to remain even post exclusion, albeit to a lower extent.
Summary of key data
Particulars (US$ billion) | January 2020 | August 2021 | August 2022 | |
Total India Equity Mcap | (i) | 2,147 | 3,339 | 3,445 |
Domestic Equity MF AUM | (ii) | 171 | 267 | 301 |
FII Equity ownership in India | (iii) | 433 | 656 | 599 |
Domestic Passive Equity AUM | (iv) | 24 | 41 | 53 |
FII ETF AUM allocated to India | (v) | 45 | 59 | 64 |
% share | ||||
Domestic Equity MF to India Mcap | (ii/i) | 8.0 | 8.0 | 8.7 |
FII Equity in India to India Mcap | (iii/i) | 20.2 | 19.7 | 17.4 |
Dom. Passive Equity to Dom. Equity MF | (iv/ii) | 14.0 | 15.5 | 17.7 |
FII ETF AUM in India to FII Equity in India | (v/iv) | 10.4 | 9.0 | 10.6 |
Domestic Passive Equity to India Mcap | (iv/i) | 1.1 | 1.2 | 1.5 |
FII ETF to Total India Mcap | (v/i) | 2.1 | 1.8 | 1.8 |
Source: Bloomberg, CEIC, ACE MF, NSDL, IIFL Research
Avg. stock OP/UP relative to indices on inclusion/exclusion from Nifty during the last 15 instances of index reconstitution
Perf. relative to Nifty (%) | Perf. relative to sector indices (%) | |||||
6m prior to date* |
Date to next 1m |
Date to next 6m |
6m prior to date* |
Date to next 1m |
Date to next 6m |
|
On inclusion | 13.8 | (2.0) | (5.9) | 14.7 | (3.2) | (5.7) |
On exclusion | (3.4) | (0.4) | (1.1) | (3.3) | (1.2) | (0.8) |
Source: Bloomberg, IIFL Research. *Note: Date refers to Index Inclusion/Exclusion date
Related Tags
Invest wise with Expert advice
IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000
IIFL Capital Services Support WhatsApp Number
+91 9892691696
IIFL Capital Services Limited - Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
ARN NO : 47791 (AMFI Registered Mutual Fund Distributor)
This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.