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Foreign Focus

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On 18 June, ICICI Prudential Mutual Fund launched a dedicated equity mutual fund that would invest directly in US bluechip firms listed on the New York Stock Exchange (NYSE) and the Nasdaq. Not exactly new, but indicative of an interesting trend.

A year ago, Motilal Oswal AMC launched an exchange-traded fund (ETF) tracking the Nasdaq-100 index; it is awaiting the Securities Exchange Board of India's (Sebi) approval for launching another ETF that would track the S&P 500.

Cut to Gurgaon-based Indxx Capital that designs ETFs and lists them on US exchanges; it has stopped launching India-focused ETFs. Says Chakradhar Gade, vice-president at Indxx Capital: "There is no appetite for Indian products among foreign investors and, therefore, we have stopped launching India-focused ETFs. In our current pipeline of 10 launches (ETFs), there isn't any Indian product."

Out of the six ETFs designed by Indxx, four are India-dedicated. Gade says foreign investors are focusing on fixed income and high-dividend yield funds; in both cases, the rest of the world does better than India. Is that reason enough for interest in foreign investment?

According to the MSCI Index, MSCI India Index has recorded a return of 2.5 per cent on a year-to-date; this is lower compared to 5.8 per cent in the US. "Emerging markets have certainly lost their shine," says Rajnish Rastogi, senior fund manager and co-head equities at Motilal Oswal AMC.

S. Naren, CIO-equity at ICICI Prudential Mutual Fund, says: "Developed markets, particularly the US, are the best defensive plays. Therefore, we are focusing on US companies that have a competitive advantage, which would be a combination of brand, technology, scale and network."

The other reason why Naren likes the US market is the way it has handled the crisis of 2008. "It had made huge losses, but its banking system is still vibrant."

On a relative basis, US banks' post-crisis period capitalisation is in better shape and the probability of growth is also higher and, therefore, it isn't surprising that Indian managers are launching US products for Indian investors.Sudhakar Shanbhag, CIO at Kotak Mahindra Old Mutual Life Insurance, says: "From a global perspective, we will have to go through a phase of risk on and risk off since the challenges faced are being currently resolved through postponement measures." 

From a three-to-six month perspective Shanbhag sees a tug of war between global risk on, risk off and domestic policy action. That means more volatility, which, for investors, is their worst nightmare.

(This story was published in Businessworld Issue Dated 09-07-2012)