India funds hit by currency note reforms; EMs bounce back

The Standard & Poor’s 500 index rose 1.6% to close at a new record high for the week ended Nov 21 as the post-US election rally continued. The US dollar index rose 0.9% while gold fell 0.6% on improved risk sentiment and a stronger greenback. Meanwhile, Brent crude jumped 10.1% ahead of the Organization of the Petroleum Exporting Countries’ Nov 30 meeting as investors were optimistic about members agreeing to supply cuts to support oil prices. This lifted emerging-market (EM) assets, which also rebounded following a big selloff a week earlier.

The worst-performing funds were invested in India equities, which slumped over the disruption caused by the government’s Nov 8 move to withdraw the INR500 and INR1,000 notes from circulation to combat corruption. In a largely cash-based economy, these two denominations make up nearly 85% of notes in circulation. India’s benchmark Sensex Index has fallen 6.6% since the reforms began, wiping out this year’s gains. Strategists suggest it may take up to two to three months for the banking system to normalise.

India funds that fell include the $5 million Amundi India Infrastructure AU fund, down 7.5%; the $304 million AB SICAV I India Growth A fund, down 7.3%; and the $2.3 billion GS India Equity Portfolio Base Acc fund, down 7.2%. These three funds have fallen 12% on average over one month. Financial services company HDFC Bank, which fell 4.5% in the week, is among these funds’ top 10 holdings. The Amundi India fund focuses on companies that are directly or indirectly involved in India’s infrastructure growth.

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