Foreign liquidity drying up in SMID space
Total inflows into India dedicated funds at $144mn are slowest since May 2023 for Small-& Mid-cap stocks
New Delhi: Foreign liquidity is drying up in small- and mid-cap (SMID) space, which can slow down the price momentum, brokerage firm Elara Securities said. “Need to closely monitor how the domestic liquidity shapes up from here,” the brokerage said.
In CY23, India saw strong liquidity from both foreign and domestic investors. This created a frenzy in Small- and Mid-cap space.
“We are finally witnessing initial signs of slowdown in India flows. Total inflows into India dedicated funds of $144mn (Large + Mid+ Small) are slowest since May 2023. This is largely on back of big outflow of $256mn from Luxemburg domiciled funds while inflows from US and Japan domiciled funds also dropped by 55 per cent-65 per cent from average levels,” it said.
India dedicated Long-only funds saw their first redemption of $184mn in 1-year. India mid-cap funds had started taking slower outflows since Jan 2024, but pace has finally started expanding. Only place where India flows remain relatively strong was in ETFs, the report said.
In the past, India dedicated Mid-cap funds had seen strong inflows in 2014-2015 and 2017-2018 period.
In the 2016 redemption cycle, Mid-cap stocks did not suffer as Domestic flows were very strong post demonetisation. In 2018-2020 redemption cycle, Midcap stocks took a big beating as domestic liquidity also dried-up.
