Inflows in ETFs jumped 74% in April to Rs 19,000 crore. While we keep talking about equities and mutual funds, ETFs are steadily gaining popularity among the investors because of their low cost, liquidity and low volatility. What are the emerging trends in equity ETFs amid tariff scares and geo-political concerns?
The Indian Equity ETF continues to attract significant inflows from various sets of investors. Interestingly, while plain vanilla Exchange Traded Funds (ETFs) continue to attract inflows, there’s a growing interest in ETFs that focus on specific sectors like technology, healthcare, defence etc. These thematic ETFs allow investors to target particular industries that are expected to perform well.
Also, Smart Beta and Factor – Based ETFs that use investment factors such as value, momentum, or low volatility for index construction rather than traditional market capitalisation, are garnering investor attention as well. These trends reflect the evolving landscape of the Indian ETF market, offering investors a variety of options to diversify their portfolios and capitalize on emerging opportunities.
Global growth forecasts are being trimmed down and in that context, would you recommend investors to lower their return expectations from equities and hence go for safer options like the equity ETFs instead of taking stock selection risks?
Given the recent downward revisions in global growth forecasts, it’s understandable to consider adjusting investment strategies. This environment can indeed impact equity markets, potentially leading to lower returns. In such a scenario, it might be prudent for investors to temper their return expectations from equities. They may consider equity ETFs as they can offer an alternative by providing diversification across a broad range of sectors and stocks, reducing the risk associated with individual stock selection. Alternatively, they can consider Smart Beta and Factor-Based ETFs as these ETFs can help capture specific investment factors such as low volatility or quality, which might perform in uncertain markets.
Healthcare and financials have been two themes that have stood out and most ETF schemes having exposure to these sectors have given double-digit returns in the past one year. Should one continue investing in both these themes, especially healthcare given that the sector remains exposed to Trump’s tariffs?
Healthcare and financials have indeed been strong performers recently, with many ETFs in these sectors delivering decent returns. However, the potential impact of Trump’s tariffs on the healthcare sector is a valid concern. President Trump’s tariffs may increase costs for healthcare companies which could affect their profitability. These increased costs might be passed on to consumers or could lead to reduced margins for healthcare companies. Despite these challenges, the healthcare sector often remains resilient due to the essential nature of its services and products. Innovations and an aging population continue to drive demand.
Financial sector performance is closely tied to economic conditions. While global growth forecasts are being trimmed, the financial sector can still perform well if domestic economic conditions remain stable.Within financials, would you recommend staying away from ETFs with exposure to PSU banks given their weak performance for the last one year or would you still bet on them, given that most public sector banks (7 out of 12) have reported a good set of numbers?
PSU banks have had mixed performance recently and probably may be too niche a category for investors. While the sector offers balanced risks-reward, a diversified approach focusing on performers can be beneficial. Investors need to monitor sector developments closely to adjust investments accordingly.Between equity and debt, where would your money go as in India we have already had a couple of rate cuts and in the US we can have two this year?
Given recent rate cuts in India and potential cuts in the US, a balanced approach is advisable. Equities offer higher returns but are volatile, while debt instruments provide diversification and capital gains with rising bond prices. Investors may look to diversify their portfolio with a mix of equities and bonds to manage risks and capture growth opportunities. However, investors should first consult an advisor to assess an individual’s risk profile.
With LIC MF’s three ETFs demonstrating stronger performance compared to the broader market average over the past year, are there any plans to launch new ETFs in the near future?
This reflects a solid strategy focused on better execution with a view to minimising tracking error. Looking ahead, LIC MF does want to be a serious player in the ETF and Index fund.
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