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Foreign portfolio investors (FPIs) have pulled out close to ₹6,000 crore from financial sector equities in the first seven trading sessions since the beginning of this fiscal. According to sector-wise FPI investment data, FPIs pulled out ₹5,896 crore from the sector during the seven trading days between April 1 and 15.
Of the total outflow, ₹4,761 crore went from bank equities, while the remaining ₹1,135 crore was from other financial sectors such as financial institutions, NBFCs and HFCs. Market experts attribute the outflow from financials to asset quality concerns over the second Covid-19 wave.
“A colossal rise in fresh Covid cases, induced by local lockdowns, has put the financial sector under pressure over concerns of further deterioration in asset quality. Banks had booked provisional numbers and, in fact, the true picture is expected from this quarter,” said Nirali Shah, Head- Equity Research, Samco Securities.
“If the situation worsens and there are renewed restrictions, banks and financials might undergo stress. This fear has gripped FPIs as delay in interest payments again may eventually put near-term pressure on the lender’s asset quality,” she added.
Portfolio rejig
However, some experts also say the outflow from financials is on account of portfolio rejig from the overweight financial sector to defensive sectors such as IT and pharma.
“Selling in financials is partly due to portfolio rotation by FIIs from financials to IT, metals and pharma, which are doing well and are unlikely to be impacted by Covid-induced restrictions,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
In a recent report, BoFA Securities said FPI holdings in domestic equities reached a record $555 billion in 2020-21, a whopping $105 billion growth between September 2020 and March 2021. The report added that 36.2 per cent of the $555 billion of investment/holdings was in the financial sector.
Net sellers
After pumping in a record inflow of ₹2.74-lakh crore, FPIs have turned net sellers in domestic equities since the beginning of the current fiscal. The foreign investors have pulled out ₹8,674 crore from equities as on Friday.
“India was a favourite destination for FIIs in FY21. The market had penciled-in GDP growth of around 10.5 per cent and Nifty earnings growth of above 30 per cent for FY22. With localised lockdowns, there is a downside risk of around 1 per cent in GDP growth. FIIs selling is a reflection of this concern,” Vijayakumar said.
“FIIs will stage a quick comeback once the second wave peaks and starts coming down,” he added.
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