20 hrs ago
Motilal Oswal Nasdaq Q50 ETF plunges after massive NAV premium
MONQ50 is an exchange-traded fund linked to US stocks.
Its exchange price rose much higher than the value of the investments it represented.
On 18 September, investors paid about ₹396 for assets valued at roughly ₹118.
The gap became large because many people wanted to buy units while the supply of new units was restricted.
The price then fell sharply as the premium began to disappear.
It dropped about 46% from its peak in only two trading sessions.
The underlying US stocks did not broadly collapse during this fall.
Investors are being advised to compare an ETF’s market price with its NAV or iNAV before buying.
MONQ50 fell 20% on 22 September after dropping from ₹471.99 to ₹317.04.
The ETF lost about 46% from its 21 September peak in two sessions.
Its market price reached ₹396.30 on 18 September while NAV was ₹118.14, a premium of nearly 235%.
Analysts attributed the premium to strong demand and restricted creation of new units because of overseas investment limits.
The correction reflected the unwinding of the premium, not a collapse in the underlying US stocks.
- Who
- Motilal Oswal Nasdaq Q50 ETF investors, market makers, and analysts cited in the reports.
- What
- The ETF suffered a roughly 46% two-session decline after trading at a premium of nearly 235% to its NAV.
- Where
- The ETF traded on the Indian exchange while its underlying assets were US equities.
- When
- The sharp reversal occurred on 21 and 22 September, after the premium had expanded through 18 September.
- Why
- Strong demand met restricted supply of new units because of limits on asset managers’ overseas investments, causing the premium to unwind.
Key facts
- ETF
- Motilal Oswal Nasdaq Q50 ETF (MONQ50)
- Peak price
- ₹471.99 on 21 September
- 22 September move
- The ETF fell to ₹317.04 and then hit the 20% lower circuit
- Two-session loss
- About 46% from the peak
- 18 September market price
- ₹396.30
- 18 September NAV
- ₹118.14
- Estimated premium
- Nearly 235% on 18 September
- Industry overseas-investment limit
- USD 7 billion
Quotes
Protima Dhawan
Director and Unit Head at Anand Rathi Wealth
“Investors should focus on the NAV or iNAV rather than simply looking at the price displayed on the exchange. For a US-equity ETF, the iNAV is based on the latest US market close and adjusted for currency movements, so the underlying value can remain unchanged during Indian trading hours even as the ETF's market price moves sharply,”
livemint.com
“The industry limit is USD 7 billion. This means that additional units of an ETF cannot be created even if there is demand.”
livemint.com
Sources
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