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Despite the crisis faced by banking and non-banking financial companies, stocks from the sector were among the top picks of foreign portfolio investors (FPIs) in the first quarter of FY20. The sectors collectively received investments of about ₹10,700 crore during the period, indicating a possible revival in confidence among the FPIs.
According to sector-wise investment data available with depositories, the FPIs invested ₹1,600 crore in bank equities in April-June. ‘Other financial services’, which includes stressed segments such as housing finance companies and non-banking financial companies (NBFCs), saw an increase in FPI investment during the quarter at ₹9,045 crore.
“Financials saw a lot of buying because the entire universe is expected to report strong earnings growth in Q1 accompanied by lower slippages and MTM (mark-to-market) gains on the investment portfolio,” said Deepak Jasani, Head - Retail Research, HDFC Securities.
At ₹7,761 crore, the insurance sector was the second highest recipient of FPI investment in equity in Q1 FY20. FPI shareholding in listed insurance companies also witnessed a significant increase year-on-year as of June 2019.
FPI shareholding in ICICI Lombard rose from 6.42 per cent in March 2018 to 18.53 per cent in June 2019. HDFC Life Insurance saw its FPI holding grow from 8.92 per cent to 11.75 per cent. “Greater visibility in revenues and margins from the current low base seem to have attracted FPIs to the insurance space,” Jasani said.
IT sector takes a hit
Rising crude oil prices made the ‘oil and gas’ sector lucrative for FPIs, which pumped in around ₹4,950 crore in Q1.
The talent shortage in the IT industry and the consequent cost impact and margin pressure continue to weigh down FPI sentiment there. The ‘software and services’ sector was the biggest loser of FPI investment in Q1, with a net outflow of ₹5,400 crore in equities.
It was followed by ‘pharmaceuticals & biotechnology’ and ‘construction materials’, with net negative investment of ₹4,500 and ₹3,400 crore, respectively. “Although the pharmaceutical sector as a whole is expected to report a PAT growth in the quarter, company-wise negative developments on the regulatory front, pricing and new launches seem to have led to some unloading by FPIs,” Jasani said.
On the debt side, FPIs sold corporate bonds of about ₹5,800 crore from the ‘other financial services’ sector while they made investments of around ₹7,444 crore in sovereign bonds during the quarter.
Sovereign bonds
“While credit concerns have kept FPIs away from corporate debt, they have been active investors in Indian sovereign bonds,” said Joseph Thomas, Head of Research, Emkay Wealth Management.
FPIs have been on a selling spree in equities ever since the government introduced higher taxes for them in the Budget.
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