The recent sluggishness in the domestic stock market is prompting many Indian asset management companies (AMCs) to increase the weightage of overseas assets in their schemes, which invest both in Indian and foreign markets. This shift in strategy has also got to do with the better-than-expected return profile of international funds vis-a-vis domestic funds over the past four months.
According to data collated from valuereasearchonline.com on fund allocation, overseas assets have risen 42% (from January) to Rs 5,243 crore as on April 30, 2008. Fund managers have allocated Rs 3,697 crore in January 08, Rs 3,941 crore in February 08 and Rs 4,667 crore in March 08 to make their asset purchases in overseas markets. Most funds, falling under this genre, basically resort to investing around 60% of the assets in equities and foreign mutual funds. The remaining is invested in debt and money market instruments.
Though industry experts say that this is a good number to start with, it is not even one-fourth of the permitted international exposure quota of $7 billion (or about Rs 28,000 crore). RBI had recently raised the overall limit for overseas investment by domestic mutual funds from $5 billion to $7 billion. Only last September, the central bank had raised the overseas investment limit for mutual funds from $4 billion to $5 billion.
A majority of the funds that invest abroad have done well in the recent market turmoil. With the home market still not very encouraging, fund managers are moving on from regular domestic winners to good companies abroad, said Dhirendra Kumar of Value Research, a mutual fund research firm. But, this doesnt mean they are not finding value in Indian shares; its just that their mandate is to invest in overseas assets, Mr Kumar added.
Currently, there are about 18 mutual fund schemes that invest overseas. Individual investment limit per fund has not been changed and is still pegged at $300 million. The top eight schemes manage around Rs 6,000 crore that are mandated for investing overseas. The largest among these is DSP World Gold Fund that has assets under management of over Rs 1,800 crore. Other large fund schemes are managed by Birla Sun Life, ICICI Prudential and Tata AMC.
Most fund managers are placing their bets in stocks listed on hi-return emerging markets like Mexico, Brazil, Hong Kong, Poland and Korea. Emerging markets account for just about 50% of world GDP and command only 7% weightage over world market cap with lots of upside left.