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Motilal Oswal Nasdaq Q50 ETF Plummets 20% After Massive Run-Up: What's Driving the Volatility?
- •The Motilal Oswal Nasdaq Q50 ETF (MONQ50) fell 20% to hit the lower circuit at Rs 253.64 on September 22, following a significant surge in its market price.
- •MONQ50's market price jumped approximately 179% from Rs 141.93 on September 4 to Rs 396.30 on September 18, before experiencing sharp declines.
- •The volatility is primarily due to a large and unusual gap between the ETF's market price and its Net Asset Value (NAV), with the market price trading at a substantial premium.
- •RBI limits on overseas investments by Indian mutual funds have restricted the creation of new international ETF units, leading to a demand-supply imbalance that contributes to the premium.
- •Changes in the ETF price-band framework, which now references the previous day's closing price instead of NAV, have also allowed the market price to move further away from the underlying asset value.
Key Questions Answered
The Motilal Oswal Nasdaq Q50 ETF hit the lower circuit after experiencing a sharp run-up in its market price over previous weeks, driven by a massive gap between its exchange price and its underlying net asset value.
RBI limits on overseas investments by Indian mutual funds restricted fresh investments in international securities, limiting the creation of new units. Combined with strong investor demand and the revised price-band framework, this created a severe demand-supply imbalance that inflated the market price relative to the NAV.
Effective September 7, the reference for an ETF's price band changed from the T-2 day NAV to the T-1 day closing market price based on volume-weighted average prices. This caused the price band to move dynamically alongside the ETF's market price rather than remaining close to its lower NAV.
