FMCG, oil & gas, insurance top FPIs’ buy list in Q1

With the initial euphoria over a demand spike for personal hygiene and homecare products slowly fading away, interest of foreign investors in FMCG companies producing these goods also seems to be waning.

According to NSDL data, foreign portfolio investors (FPIs) made a net investment of ₹15,247 crore in equities of the household & personal products sector during the first quarter of FY21. Although the sector was the highest gainer of FPI investment in the first quarter, in the second half of the quarter, it has witnessed an outflow.

FPIs made a record net investment of ₹19,069 crore in the sector between April 1-May 15, compared to a net outflow of ₹2,503 crore in the whole of FY20.

While a major portion of this huge inflow was attributed to GlaxoSmithKline’s stake-sale in HUL, market experts also said that FPI interest in the sector is also on account of the strong distribution network of FMCGs, the essential nature of the product portfolio and rising demand for personal hygiene and homecare products due to growing awareness among consumers in the wake of the Covid-19 pandemic.

However, in a possible reversal of the outlook towards the sector, foreign investors pulled out close to ₹4,000 crore between May 15-June 30.

In a recent report on the FMCG sector, CARE Ratings said the impact of the ongoing pandemic will be sharper, compared to the earlier large macroeconomic shocks such as demonetisation and GST.

The report noted that in Q1 FY21, April will be the worst-affected month due to multiple challenges faced by the FMCG sector, such as deterioration in production levels, distortion in distribution, shortage of labourers and declining sales.

“The demand for certain products from the ‘household and personal care’ category like body shower, moisturisers, face wash, hair gel, hair oil, etc. are expected to witness further downturn and may not recover until Q4 FY21,” the rating agency said.

Other gainers

Apart from the FMCG sector, Oil & Gas and Insurance are the other major gainers of FPI investment in the first quarter with a net inflow of ₹7,195 crore and ₹5,642 crore respectively.

“Recently, BP and RIL announced the start of their new Indian fuels and mobility joint venture where BP paid RIL $1 billion for its stake in the JV which added inflows to the oil & gas segment,” Nirali Shah, Senior Research Analyst at Samco Securities, said, adding, “In any case, oil was available at a depressed price, which made this segment an attractive place to buy distressed assets.”

On inflow into the insurance sector, Shah said, FPIs lapped up the shares divested by promoters of listed life insurers such as HDFC Life Insurance and SBI Life, which trimmed their stakes to comply with the regulatory norms of promoter shareholding.

“In addition to this, ICICI Bank too offloaded shares in ICICI Prudential Life to further strengthen its balance sheet. All these instances and more added to the FPI inflow to Indian equities,” she added.

Equity losers

Among the top losers in the first quarter, the software & services sector witnessed a net outflow of ₹4,182 crore followed by utilities (₹4,110 crore) and textiles and apparels (₹1,501 crore) sector.

“The outflow in the software sector could be attributed to wide expectations of a reduction in IT spending by companies, and problems related to H1B visa,” said Ajit Mishra, VP-Research, Religare Broking, adding, “FPIs preferred other sectors as they provided better return potential given their sharp decline in March.”

On outflow from the textile sector, Mishra said the textile industry was already witnessing slowdown even before the pandemic and growth prospects have now worsened as fewer people are moving out of their homes.

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