Weighed down by global slowdown in automobile sales and tepid demand in the Indian market, foreign portfolio investors discarded equities of automobile and auto component sectors worth ₹14,401 crore, making it the highest loser of FPI investments in FY2018-19.

“Domestic auto companies are closely linked to the global entities, so the US-China trade war and the US’ stand-off with the European Union are having an impact on the domestic automobile industry as well as component makers,” said Joseph Thomas, Head - Research, Emkay Wealth Management.

Also read:FPIs stay bullish on India, pour in ₹11,096 cr in April so far

The automobile sector, both globally as well as in India, is saddled with a plethora of issues, including tougher emission norms, high raw material cost, poor demand, and trade protectionism among the developed countries. From the point of view of FPI investment, the sector closed with net negative investment in 10 out of the 12 months of the previous fiscal.

According to sector-wise data on FPI investments, software and services, metals and mining, construction materials and banking are the other major sectors that witnessed high sell-off by foreign investors in FY19.

“Rising cost of on-shoring, margin pressure and USD/INR volatility are some of the factors for sell-off in the software sector while risk of fresh slippages and delay in insolvency resolution are reasons for the selling pressure in the banking sector,” said Deepak Jasani, Head of Retail Research, HDFC securities.

“Slowdown in software services is only temporary. The rupee will get only weaker from here and not stronger which will benefit software exporters,” said Thomas.

Although banking equities witnessed huge outflow of investment for most part of the previous fiscal, FPIs recouped some of the lost ground in the sector by infusing significant investment in the last two months of the previous fiscal. Against net sales of bank equities worth ₹24,300 crore between April 2018 and January 2019, FPIs made net purchase of ₹18,300 in February and March alone.

Top gainers

Surprisingly, equity shares of ‘other financial services’, which include financial institutions, non-banking financial companies (NBFCs) and housing finance companies (HFCs), gained most from FPI investments at about ₹12,200 crore, despite the sector being marred by issues of liquidity crisis and credit growth post IL&FS crisis.

“NBFCs taking the place of banks, which are impacted by PCA (prompt corrective action) norms and lower capital adequacy in providing advances, and the scope of NBFCs and HFCs growing their advances at a faster pace have made the sector lucrative,” Jasani said. Electric utilities, insurance and pharmaceutical sectors were the other major gainers of foreign investment in the previous fiscal.

Debt

On the debt side, sovereign bonds recorded the highest sell-off by FPIs at ₹47,216 crore in FY19, while other financial services and electric utilities followed with net sales of about ₹3,800 crore and ₹2,100 crore, respectively.

“Sovereign bonds are a large portion accounting for 47 per cent of the cumulative debt outstanding. Unlike corporate paper, entry and exit from sovereign debt is easier and faster given the large numbers and categories of regular participants on both sides,” Jasani said.

Although FPIs remained net sellers for most part of the previous fiscal, selling equities worth ₹51,288 crore, they infused ₹51,200 crore in Indian equities in February and March to close the fiscal with a net negative investment of just ₹88 crore. On the other hand, in the debt segment, they closed the fiscal with a net negative investment of ₹42,356 crore. In the current financial year so far, FPIs have made net investment of ₹13,914 crore in equity and negative investment of ₹3,279 crore in debt.

“As long as the interest rate scenario in developed markets, favourable risk-on sentiments, and GDP and corporate earnings in India are favourable, we will continue to see FPI inflows,” Jasani said.

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