Offshore India funds, ETFs saw $4.75 bn outflows in 2013

India-focused offshore funds and exchange-traded funds (ETFs) registered outflows totalling $4.75 billion in 2013, despite overseas investors pumping in a staggering $20 billion into the country's market.

An offshore India fund is one that is not domiciled in India but invests primarily in Indian markets.

According to a report by mutual fund tracker Morningstar, India-focused offshore funds and ETFs saw third consecutive yearly outflow in 2013.

The cumulative net outflow during 2012 was $1.8 billion against a net withdrawal of $5.4 billion in 2011.

During the entire 2013, the only net inflow was $33 million in September, which was the first monthly inflow since March 2012. For all other months during the year, there were net outflows from India-focused offshore funds and ETFs.

"The outflow in 2013 was mainly due to the poor performance of the Indian rupee and a weak macro-economic environment," the report said.

The rupee plunged to a record low of 68.85 against the US dollar in late August. Emerging market currencies suffered after the US Federal Reserve said that it would start reducing its quantitative easing programme.

However, the rupee managed to recover significantly by the end of the year, helped by measures taken by the government and the Reserve Bank of India (RBI).

"India-focused offshore funds and ETFs registered a net outflow of $4.75 billion for 2013, with the fourth-quarter outflow rising to $1.3 billion from about $0.7 billion in the third quarter of the calendar year," the report said.

Assets of all India-focused offshore funds and ETFs declined to $30.1 billion in 2013 from $37 billion in the preceding year. The total assets of these funds and ETFs are now down by a massive 46 per cent from the peak of about $55.9 billion at the end of 2010.

However, overseas investors infused a net amount of $20.1 billion into the Indian equities in 2013.