India-focused funds' net inflows swell to 2-years high of $2.6 bn

In comparison, the funds saw an infusion of $2 billion in the January-March quarter.

The offshore India fund -- not domiciled in India -- receives flows from overseas investors and in turn invests the money into the Indian markets, according to a report by Morningstar.

"Growing geopolitical concerns on the back of US bombings in Syria and Afghanistan and aggressive stance towards North Korea injected an element of uncertainty in the initial part of the quarter, which prompted foreign portfolio investors (FPIs) to hedge risks.

"Given emerging markets are more susceptible to such uncertainties, they restrained their investments into Indian markets. As a result, FPIs were net buyers of Indian equities worth $0.37 billion in April," Himanshu Srivastava, senior analyst manager research at Morningstar said.

Flows improved in May and June on expectation that the government would speed up development and economic reforms in its last two years in office before going for elections in 2019. Additionally, the scheduled roll-out of GST and its long-term benefit provided a positive backing, he said.

According to the report, India-focused offshore equity funds registered net inflow of $2.1 billion, while India- focused offshore ETFs witnessed net inflows of $467 million, taking the total to $2.6 billion.

This is the highest quarterly net inflow for the category after the first quarter of 2015, when it had received a net inflow of $5.6 billion.

Flows into equity funds are generally considered to be long-term in nature, whereas flows into ETFs indicate predominantly short-term money.

The higher inflows into equity funds compared with ETFs suggest that foreign investors are regaining confidence in country's markets and viewing it as a long-term investment destination.

The robust inflows coupled with a rally in the equity markets expanded the asset base of the India-focused offshore equity funds and ETFs. Their combined assets rose to $55.2 billion as of June from $50.1 billion at the end of March.