Foreign portfolio investors’ (FPIs) net invested over ₹14,205 crore in banking and financial services sector in November, the most in a single month since February 2021. The high monthly inflow into ‘Financials’ comes after months of intense FPI sell-off in the sector. The foreign investors have been net sellers in the financial services sector in five out of eight months of the current fiscal. 

After pulling out ₹38,522 crore in the first three months of the current fiscal, FPIs turned net buyers in the banking & financial services’ sector in July and August with ₹1,014 crore and ₹12,799 crore in net investments. They again turned net sellers in September and October, collectively pulling out ₹6,359 crore during the two months. 

Market experts attribute the current FPI optimism on the financial sector to the improving bank credit growth, lower bad loan provisions, drop in fresh slippages during the previous quarter and strong balance sheet of both private and public sector banks. 

Credit quality concerns

Ajit Kabi, Banking Analyst at LKP Securities said, the credit quality concerns of the financial sector is behind as the collection efficiency is around 100 per cent. “The companies have made adequate buffers for any impending asset quality woes. Furthermore, attractive valuation provides better risk-reward opportunities.” 

All major banks have posted healthy results in the second quarter. The country’s largest private sector lender HDFC Bank posted 20 per cent growth in Q2 net profit at ₹10,605.8 crore, while ICICI Bank posted 37 per cent growth in its net profit at ₹7,558 crore. Axis Bank’s Q2 net profit zoomed 70 per cent year-on-year to ₹5,330 crore during the July-September quarter.  The country’s largest lender, State Bank of India, also posted its highest-ever quarterly net profit at ₹13,265 crore during Q2FY23. 

Strong inflows

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, FPIs turned strong buyers in November consistently buying financials, IT, autos, FMCG, capital goods and telecom while they were sellers in financials in October. “There is no consistency in their sectoral selling strategy. In the short run the most important factor determining FPI strategy is the movement in the dollar index.” 

The strong FPI inflows into financials are also reflected in the Index movements. Nifty PSU Bank index gained the most between October and November. The index grew by 15.6 per cent as against benchmark Nifty 50, which increased by 4.14 per cent during the comparable period. Nifty Bank Index growth was also higher than the broader Nifty at 4.66 per cent.

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