The Indian ETF market is booming, with its assets under management (AUM) growing five-fold since 2018, said Mirae Asset group, one of India's leading mutual fund houses.
The AUM of Indian ETFs increased by more than 69 per cent year-over-year from 2021.
In December 2021, the ETF AUM was Rs 4,03,705 crore, and the index funds' AUM was Rs 49,471 crore, which increased to Rs 5,20,232 crore and Rs 1,36,432 crore, respectively.
ETFs are securities traded on a stock exchange like shares. ETFs typically replicate the performance of a publicly available index, sector, or commodity. For instance, the Mirae Asset Exchange Traded Funds track the performance of various Nifty market indices.
Indian ETF Trends
Mirae reports that the ETF market's AUM globally rose to $82 billion in 2022 from $75 billion in 2021. In addition, its research showed that most of the ETF-tracking benchmark indices performed their best in the last three years, indicating the Indian ETFs' improved performance.
However, in the last year, many Indian ETFs showed negative growth. On the other hand, many global stock exchanges outperformed their Indian counterparts in the past year. For instance, the S&P 500, which tracks the top 50 bluechip companies in the US market, has grown by 5.5 per cent in one month, 3.2 per cent in three months, and 9.4 per cent over the past year. But in the past 3 and 5 years, it grew by only 14.2 per cent and 15.4 per cent, respectively, which has been surpassed by Indian ETFs.
Reasons For Poor Growth in the Last Year
The ETF market in India dipped last year primarily due to global macroeconomic factors, FPI outflows, and rising inflation. However, inflation is somewhat receding, keeping hopes alive for ETFs.
The poor performance in January was attributed to a US-based research report on the Adani Group in India. "Nifty 50 (-2.4 per cent) moved down sharply in the last few days of January primarily due to a US-based research report on a big conglomerate in India. Markets were concerned about its collateral impact on the banking sector," Mirae group cited in the report.
In the last one- and three-month period, most inflows happened in Nifty 50, Sensex, and Target maturity funds. In contrast, the significant outflows were in banking, financial services, insurance, and IT ETFs, the group informed.
Indian ETF Market
Analysing the best-performing indices gives us an overview of their performance and investors' sentiments.
In the last three years, NIFTY India Manufacturing Index (TRI) has risen 22.4 per cent, while over the past one year, it surged 6.3 percent. There was a 0.6 per cent decline in the last three months but a 0.6 per cent rise in the previous month.
Therefore, it is safe to assume that the ETF tracking manufacturing index performed the best. Much of this growth is due to the centre's increasing capital expenditure on infrastructure and the Production Linked Incentive (PLI) scheme. As a result, investors are optimistic about the growth of key manufacturing segments like electric vehicles, defence, electronics, etc.
The Nifty Midcap 150 Index, which illustrates the growth of emerging blue-chips, was the second top gainer in the three-year category. It rose 21.4 per cent over the last three years. Nine per cent of the allocation in Mirae's ETF tracking this index goes to the bank sector, and around 8 per cent goes to industrial products. This ETF has been growing because of robust earnings upcycle in the banking sector, with banks reporting substantial margin expansion and improving asset quality.
