Is global diversification getting expensive? ETFs trade at up to 65% premium to iNAV
A supply crunch is pushing India-listed global ETFs far above their underlying value, with analysts warning investors against paying steep premiums for international exposure.
ETF
Global diversification is coming at a steep price for Indian investors, with several India-listed international ETFs trading at significant premiums to their indicative net asset values (iNAV). The premium has widened sharply over the past two sessions, raising concerns that investors could be paying far more than the underlying global assets are worth.
Global ETFs trade at steep premiums to iNAV
The Nasdaq 100 Top 50 ETF was trading at a 65% premium to its iNAV, while the S&P 500 Top 50 ETF was at a 46% premium. The NYSE FANG+ ETF was trading at a 34% premium, Hang Seng Tech ETF at 28%, and Nasdaq 100 ETF at 26%, according to data shared by Samco Securities.
What made the move notable is that much of the increase has come over Monday and Tuesday, said Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities. “US markets were closed on Monday for Labour Day, suggesting the sharp rise in Indian ETF prices is not simply a reflection of a corresponding move in the underlying US markets.”
Sheth added that the move could largely be explained by a classic demand-supply mismatch. Since India’s mutual fund industry has been constrained by overseas investment limits, it restricts the ability of fund houses to create additional units of international ETFs when demand rises.
Harshal Dassani, business head at INVasset PMS, echoed similar views. “When supply cannot respond to demand, the ETF itself becomes scarce and can trade materially above intrinsic value,” he said.
Dassani described the recent surge as “less a global-equity story and more a scarcity premium created by market structure.” He pointed out that the rising domestic demand for international exposure, coupled with restrictions on creating fresh units, has weakened the normal arbitrage mechanism that typically keeps an ETF’s market price close to its underlying value.
Premium may not reflect the exact fair value
There is also an important technical caveat. Since international markets can be closed while Indian markets are trading, the iNAV of an international ETF may not perfectly reflect the contemporaneous value of its overseas holdings.
Dassani therefore cautioned that a headline 65% premium should not automatically be interpreted as the precise economic premium an investor is paying. However, the size of the gap is still significant enough to warrant caution.
For investors, analysts say the key distinction is between the attractiveness of the underlying global market and the price being paid for the ETF.
“Paying Rs 120 or Rs 130 for roughly Rs 100 of underlying assets creates an additional risk that has nothing to do with the global investment thesis,” Dassani said.
If overseas investment headroom improves, fresh ETF units become available, or domestic demand cools, these premiums could compress even if the underlying Nasdaq, S&P 500 or other global indices remain unchanged.
What should investors do?
The message for investors is not to abandon global diversification, but to avoid chasing international ETFs at unusually high premiums. Investors should compare the ETF’s market price with its iNAV before taking exposure and consider waiting for the premium to normalise where the gap is excessive.
“Global diversification may make sense, but paying a 30-60% premium for it does not. Investors should pay for the underlying asset, not the scarcity premium attached to the ETF,” said Seth from Samco Securities.