Emerging Markets

Online Platform Sees Surge Of India Funds, Fires Warning About Risks

Tom Burroughes Group Editor 3 February 2016

Online Platform Sees Surge Of India Funds, Fires Warning About Risks

A sharp rise in the number of India-focused funds is not all good news in the eyes of an investment platform, which worries investors could be taking too much risk.

Managers of an online investment platform fear that an understandable desire to tap into India’s economic ascent, at a time when many other emerging markets are suffering, is encouraging individuals to run excessive risks in their portfolios.

Rplan.co.uk reports a 280 per cent surge into Indian-only funds last year from levels seen a year earlier. That coincides with last year’s 6.12 decline in the MSCI India Index for 2015, which was far less severe than some of the other losses suffered by emerging market countries. The election of reformist Narendra Modi in 2014 initially boosted the Indian stock market (rising 30 per cent in 2014). Some of that pro-reform optimism has held since, albeit with a few question marks.

The online platform said there are 294 Indian-focused collective investments (mutual funds, exchange traded funds and investment trusts), but almost all of them (90 per cent) have the two highest risk rankings of six and seven (16 per cent and 74 per cent respectively). This means annualised volatility of 15 per cent to 24.99 per cent or over 25 per cent respectively. Just 23 per cent of the funds available invest in fixed income, with the remainder being pure equity, it said.

Over the past 12 months, some 21 Indian collective investments have been launched and 21 per cent of them have been launched since 2013; only 47 per cent have been around for at least five years, it said.

“The Indian stock market has been outperforming global markets and this explains why we have seen such a big increase in inflows into Indian equity funds. However, our research shows that this is a very volatile asset class and investors should only have a small exposure to it as part of a balanced portfolio,” said Stuart Dyer, Rplan.co.uk’s chief investment officer.

“I fear that Indian equities are the latest investment fashion item just as China and emerging markets have been. These are high profile, but high risk investments and many retail investors are overly exposed to them,” he said. 

Recent figures show some uptick in the pace of India’s economy. The rate of growth in India's manufacturing sector improved to a four-month high in January, reaching expansion territory after the contraction seen at the end of last year. The seasonally adjusted Nikkei India Manufacturing Purchasing Managers' Index gave a reading of 51.1 in January, compared with 49.1 in December. A figure above 50 shows expansion.


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