Domestic MFs increase foreign Equity Exposure by 229%
Mutual funds’ investment in shares of companies listed abroad surged this year, increasing to Rs 33,078 crore as of November from Rs 10,042 crore in December 2020.
More and more Fund managers are launching schemes that invest abroad.These include the Motilal Oswal S&P U.S. IPO & Spinoff Fund of Funds, HSBC Global Equity Sustainable Healthcare Fund of Fund, Tata Global Semiconductor Fund of Fund, and Navi World Index Fund of Fund.
The asset value of Rs 33,078 crore works out to around $4.4 billion at the current exchange rate . This reflects the value of the assets held and not the investment made. The value of the assets may have gone up because of market movements as well. This would leave more room before the $7-billion ceiling is hit. Additional inflows into new schemes investing abroad means getting closer to the limit.
There is a ceiling on mutual fund investment in foreign companies, which has remained unchanged at $7 billion since 2008.The mutual fund industry has been in talks with the Sebi to raise the $7-billion limit. Sebi and the Reserve Bank of India are likely review the situation and if deemed fit may hike the limit is expected.
The weakening of the rupee, such as when the dollar became worth more than Rs 76 earlier in December, provides some respite to absorb fresh inflows. Investment worth $1,000 will absorb Rs 73,000 at an exchange rate of Rs 73. This rises to Rs 76,000 if the rupee depreciates to Rs 76 against the dollar. The opposite also holds true.
Top 10 holdings account for more than 50% of assets
These funds focused on Overseas investments provide access to investment opportunities, which may not be there in India’s listed companies. This includes premier electric vehicles, global internet and social media companies, and hardware companies, said the person.
The data shows that Tesla, Google parent Alphabet, and computing company Nvidia are among the top holdings . The top 10 holdings account for more than half the assets. Investors are said to be increasingly putting in money in such funds because of the opportunity to diversify, like investing in a currency other than the rupee. Foreign holdings appreciate in value if the rupee falls.