Banking and financial services were the favourite investment theme of foreign investors in the first quarter. As per latest data, foreign portfolio investors (FPIs) pumped over ₹44,000 crore in the financial services sector, highest inflows in more than ten quarters. 

After being net sellers in the financial sector to the tune of ₹15,655 crore in the last quarter of the previous fiscal, FPIs turned net buyers in the sector since the beginning of the current fiscal. FPIs invested ₹7,690 crore in April followed by ₹17,671 crore (May) and ₹18,704 crore (June), taking the aggregate investment to ₹44,065 crore in Q1FY24.

Exchange rate

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, says FPIs’ buying decisions are influenced by the exchange rates in addition to various other factors.

“When the dollar declines and is expected to decline further, capital flows to emerging markets increase. The dollar index has declined sharply from the late May high of 103.5 to below 100 on July 18, triggering increasing capital flows to India. This is the primary reason why FPIs are buying stocks which they were selling in January and February this year,” he added.

The overall Indian equity market itself received a net inflow of over ₹ one lakh crore in Q1, the highest in the last nine quarters, driven by economic growth and strong corporate earnings.  Of this inflow, the financial sector alone got about 43 per cent of the equity inflows in the first quarter. 

Credit growth

Experts also said another major reason for the massive inflows into financials, particularly the banking sector, is due to its impressive credit growth and declining non-performing assets (NPAs).

Vijayakumar said FPIs focus on high quality large-cap private banks since it is this segment which has generated wealth for investors in the long run. 

“But last year, the PSU banks staged a spectacular rally. The prospects of banking stocks look promising,” he added. 

The Nifty Bank index rallied over 10 per cent in the last three months against three per cent growth in the Nifty IT index. The benchmark NSE Nifty also rallied by 10 per cent during this period.