On 3 February, Facebook shares (or, Meta Platforms) crashed a record 26% after a weak earnings report. The crash wiped $230 billion off its market capitalisation in a single day. For perspective, that’s more than the market cap of Reliance Industries, India’s most valuable company on the bourses.
While many market experts saw this as a neat buying opportunity, most Indian mutual fund investors could only watch Meta’s slide—not buy it. Blame this on an end-January directive from the Association of Mutual Funds of India (AMFI). The industry body essentially told its members to stop investing in overseas securities from 2 February. The direction followed an email from market regulator Sebi to AMFI on 28 January.
“In order to avoid breach of industry-wide overseas limits as allowed by RBI, you are advised to inform all AMCs to stop subscriptions intending to invest in overseas securities with immediate effect,” Sebi’s email had said. The Reserve Bank of India (RBI) is India’s central bank. Asset management companies (AMCs)—mutual fund houses—had no option but to comply.
The limit Sebi was referring to isn’t small money—$7 billion (~ Rs 52,500 crore). Last increased in 2008, the limit seemed more than bountiful just a couple of years ago. “It was hardly anything two or three years ago,” says Neil Parikh, chief executive of PPFAS Mutual Fund, among the key players in international investing from India. “Now, the mutual fund route has exhausted nearly $7 billion.”
He should know. Nearly 30 mutual fund schemes have joined the global investing bandwagon over the past two years. “It has really taken up investor mind space. The inflows have been pretty crazy in this space,” Parikh adds.
The numbers bear this out as well. From just Rs 7,600 crore ($1 billion) as of April 2020, the value of mutual funds’ investments in foreign companies zoomed to more than Rs 58,000 crore ($7.7 billion) as of December 2021, according to data from markets data provider Prime MF Database.
Sure, the pandemic-driven, liquidity-fuelled rally in stocks across global markets since April 2020 would have contributed to this growth. But a big chunk is from fresh inflows into mutual funds investing in global stocks. The $7 billion limit is on the basis of the cost of investments, not on their market value, say industry experts The Ken spoke to.
There’s so much demand that mutual funds nearly breached the limit in January end, utilising nearly 95%, according to industry grapevine. Fund houses are now eagerly waiting for RBI to bump up the limit. “It [the bump-up] just seems to have been caught up in bureaucracy. There is no reason why the limit should not be increased,” says a senior executive in a fund house who does not want to be named. The executive and others The Ken spoke to requested anonymity as they didn’t want to be seen publicly talking about the matter.