Inflow Shift
Korean funds’ inflow into the Indian stock market have soared as emerging markets have emerged as new investment destinations amid the U.S.-China trade war. As the entry of large players has widened the choice of exchange traded funds (ETFs), the Indian ETF market is expected to expand faster over time.
According to fund ratings firm FnGuide on May 8, 27 Indian funds set up in Korea attracted 250.1 billion won (US$188.8 million) in the last three months as of May 4. This is significantly higher than Vietnamese funds (34.8 billion won or US$26.3 million) and similar to funds targeting China and the Greater China area (a combined 250.8 billion won or US$189.3 million).
During this period, outflows were seen in funds targeting North America (-362.8 billion won or -US$273.9 million), Brazil (-1.5 billion won or -US$1.1 million), Japan (-6.2 billion won or -US$4.7 million), and Europe (-7.2 billion won or -US$5.4 million).
The Indian investment ETF market grew in size as Samsung Asset Management and Mirae Asset Global Investments made a foray. As Korean investors’ direct investment is limited, indirect investment through funds is expected to surge.
Externally, India is evaluated as the right country to replace China in the process of the United States getting rid of China from global supply chains. One of India’s strengths is its abundant young labor force. With a population of more than 1.4 billion, India is expected to overtake China in terms of populations in the first half of this year. According to the World Bank, the share of the population aged 65 or older over in India stood at seven percent in 2021 and the percentage was below that of Thailand (14 percent), China (12 percent), and even Vietnam (eight percent).
The Indian government has also been pushing for economic growth since Modi took office as Indian Prime Minister in 2014, with policies to foster venture startups and the Indian manufacturing industry in full swing. As a result, the Indian economy grew 6.8 percent in 2022 and is projected to grow 6.1 percent this year according to the International Monetary Fund. India’s leading market index, the Nifty 50, has also been performing well, with an average annual growth rate of about 14 percent over the past 30 years.
“India’s minimum wage is one-third of Vietnam’s and 20 percent of China’s,” said Heo Jae-hwan, a researcher at Eugene Investment & Securities. India’s new corporate tax rate is 15 percent, which is significantly lower than those of its neighboring countries [20 to 25 percent].”
However, India is faced with a limitation that it will see U.S. and U.K. investment in India grow, but also it will have to give up receiving Chinese money. India’s other hurdles to clear include a trade deficit due to India’s domestic demand-centered economy, small middle class, and relatively lagging development of light manufacturing and labor-intensive industry. The Indian economy also has to deal with the issue of its overvaluation. The price-to-earnings ratio (PER) of stocks in the Indian stock market is now 17 but it was as high as 22-23 at the beginning of this year.