ET Intelligence Group: After an overweight stance for eight years in a row, the fund managers focusing on emerging markets (EMs) have turned neutral to Indian equities following rising uncertainty over the country’s economic growth amid the Covid-19 pandemic.

India has a weight of 9.1 per cent in the MSCI EM index.

A neutral stance means fund managers will maintain a similar weight for Indian equities in their respective portfolios. At its peak in 2015, India’s weight in the fund managers’ portfolios was 400-500 basis points more than that in the MSCI EM index, which is used as a benchmark by fund managers to evaluate their fund performance. Currently, India has the fourthlargest country weight in the benchmark index after China, South Korea and Taiwan.

Since its peak five years ago, fund managers have gradually reduced their exposure to Indian equities.

This was accentuated in March 2020 after the record selling by foreign portfolio investors (FPIs) who pulled out $8.3 billion (Rs 61,972 crore) from Indian equities in a month.

It was 15 per cent of the total FPI selling worth $53 billion in the EMs, according to the International Institute of Finance. Fund managers were overweight on India in the past due to expectations of higher earnings growth fuelled by worldleading GDP (gross domestic product) growth.

For FY21, analysts had previously anticipated a double-digit growth of 16-18 per cent in earnings per share.

This now looks to be too ambitious considering the impact of the pandemic and the subsequent lockdown on business activities in the country.

In this backdrop, a lower exposure to India would help FPIs manage the volatility of their portfolios relative to the benchmark index, expressed as the portfolio beta. Indian equities have underperformed the MSCI EM index by 6 per cent over the past month.