Study of passive equity flows in India: IIFL Capital Services

29 Sep 2023 , 10:34 AM

An analysis of passive equity funds, both FIIs and domestic MFs, shows that the total passive equity AUM is up 20% to US$140bn in the last year, and forms 3.8% of total India MCap. Within that, FII passive ETF AUM is up by 22% while domestic passive equity AUM is up 17%. Passive inflows for foreign/domestic MFs have remained resilient over the years and constitute 42%/31% of their total equity inflows so far in CY23. New schemes launches, steady increase in assets and money coming into passive schemes highlights the growing attractiveness and popularity of passive investing in India. 

FII ETFs strong show in last year: Passive equity AUM for FIIs has increased sharply by about 22% to $78bn in the last year. Share of FII ETFs to overall FII Equity ownership in India is now 12.1% (up from 10.6% a year ago). Over this period, India weightage of most foreign ETFs has also gone up, as India’s relative attractiveness to global funds keeps on improving. 

Domestic passive equity sees some share loss: Domestic passive equity AUM is up by 17% to US$62bn in the last year. Domestic passive equity AUM is now 17.1% of the Domestic Equity MF AUM, down from 17.6% a year ago, as analysts of IIFL Capital Services see that active Mid and Small cap schemes have gained share in the last year. Large cap passive equity schemes contribute to 83% of the domestic passive equity AUM, as schemes tracking Nifty 50 and Sensex make up majority of the AUM. 

Fund flows resilient: Foreign passive money has consistently seen net inflows in India over the years, and has contributed to ~42% ($6bn) of net FII inflows in the secondary markets in India so far in CY23. Domestic passive inflows have also remained strong through the years. With $6.8bn inflows in CY23 so far, domestic passive funds represent ~31% of the total equity MF inflows.