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After investing nearly ₹10,700 crore in financial sector company shares in Q1FY20, foreign investors did an about turn in the following quarter. They withdrew close to ₹20,000 crore from the sector in July and August. In fact, the outflow in August of ₹13,090 crore was the highest monthly outflow in recent times. It included ₹8,908 crore in banking stocks and ₹4,182 crore in sectors such as non-banking financial companies and housing finance companies.
“Financial sector carries a large weight (40 per cent) in the Nifty. Hence, in a month when FPIs were large net sellers in Indian equities, a large chunk of that selling naturally happened in the financial sector,” said Deepak Jasani, Head — Retail Research, HDFC Securities. Stung by the super-rich tax surcharge introduced by the government in the Union Budget, FPIs pulled out equities worth ₹30,011 crore in July and August.
Consequently, S&P BSE BankEx fell to 30,949.72 in August from 34,971.86 in June, while the BSE Finance fell to 6,036.67 from 6,661.83 recorded during the same period.
Prior to this, the highest monthly outflow in the financial sector was recorded in October 2018. FPIs pulled out ₹8,205 crore from the financial sector. Overall, they withdrew ₹28,921 crore from across all sectors of the equity market.
“The recent measures announced by the government for the sector, including the recapitalisation of banks, mergers, better liquidity flows into NBFCs may be helpful in preventing the sector from falling further,” said Joseph Thomas, Head of Research, Emkay Wealth Management. Oil & gas sector was the second-highest loser of FPI investment in August with net outflow of ₹3,840 crore, followed by software & services at ₹2,744 crore. Sell-off in the software sector remains unabated for the fifth straight month with total net outflow of ₹14,000 crore in the current financial year.
“In times of slowdown and economic sluggishness, corporations reduce their spends on technology by cutting down on fresh investments. If the sluggishness is going to be more severe than expected, then it may be negative for the domestic companies to some extent,” Thomas said.
Insurance is the only major sector to witness net inflow of FPI investment in August with a net investment of ₹4,224 crore. The sector received nearly 13,000 crore of investment, making it the top gainer of FPI investments in FY20.
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