The premium on Motilal Oswal's Nasdaq fund fell from 235% to 76%, and creation is still shut
Motilal Oswal's Nasdaq Q-50 fund closed at 214.61 rupees on Friday, September 25, still 76% above its net asset value, with new units still blocked.
Motilal Oswal's India-listed Nasdaq Q-50 fund rose on Thursday and Friday and closed on Friday, September 25, still 76% above its net asset value.
The fund closed at 214.61 rupees. Its net asset value for that September 25 session, the value of the assets behind each unit, was 121.94 rupees. The gap between the two is the premium.
On Friday, September 18, the same fund closed at 396.30 rupees against a net asset value of 118.14 rupees, a premium of 235%. By September 25 the exchange price was down 46%. The net asset value was up 3.2%.
The exchange price fell 46% from September 18 through Friday
A day's price band allows a move of at most 20%. The band is the limit on how far the units can move in a session.
"The correction was driven by the unwinding of this premium, rather than a collapse in the underlying US stocks," said Protima Dhawan, director and unit head at Anand Rathi Wealth, on Tuesday.
The block is creation.
"The industry limit is $7 billion. This means that additional units of an ETF cannot be created even if there is demand," said Souvik Biswas, head of research at Bajaj Capital.
In a normal week a dealer delivers the stocks, or the cash to buy them, and sells the new units on the exchange. That selling pulls the screen price back toward the assets.
The fund held 1.76 billion rupees on Monday, August 31, the latest monthly total from the Association of Mutual Funds in India. At the Reserve Bank of India's September 25 reference rate, that was $18 million.
Since Monday, September 7, the band has been set from the previous session's market price, the average price of trades in the last 30 minutes, rather than from the net asset value of two sessions earlier. It starts at 10% and can widen to 20%.
"The implication is that under the earlier NAV-based mechanism, the ETF's price band remained close to its NAV, whereas under the new price-based mechanism, the band moves along with the ETF's market price," Motilal Oswal said in a September 9 note. The premium was already 19.5% on Friday, September 4, before that switch.
Two other India-listed funds closed Friday above their net asset value as well. Mirae Asset's S&P 500 Top 50 fund ended at 98.49 rupees, against a net asset value of 69.16 rupees, a premium of 42%. Its NYSE FANG+ fund ended at 238.42 rupees, against a net asset value of 181.69 rupees, a premium of 31%.
After the Indian market shut, BSE said the overseas investment limits were fully used, so the funds cannot create new units. It said certain funds holding overseas securities were trading at a substantial premium even though their net asset values had stayed broadly stable.
BSE said prices could correct sharply if those limits are raised, and again on April 1, 2027, when the band's base price switches to the previous day's net asset value. SEBI scheduled that switch in a June 15 circular. BSE warned that the fall can come even if the overseas stocks do not move.
Frequently asked
Why is creation of new units still shut?
The industry overseas investment limit of $7 billion is fully used, so additional units cannot be created even if there is demand.
What did the fund close at versus its net asset value?
It closed at 214.61 rupees on Friday, September 25, against a net asset value of 121.94 rupees.
Did a drop in US stocks drive the price fall?
The correction was driven by the unwinding of the premium, rather than a collapse in the underlying US stocks, and the net asset value rose 3.2%.
When could prices correct again?
BSE said prices could correct sharply if the overseas limits are raised, and again on April 1, 2027, when the band's base price switches to the previous day's net asset value.