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After nine months of intense sell-off in the banking and financial services equities, foreign investors have turned net buyers in the sector in the last two months.
As per latest NSDLdata, foreign portfolio investors (FPIs) have pumped in a net investment of ₹1,014 crore in the ‘Financial Services’ sector in July followed by ₹12,799 crore in August.
FPIs have been net sellers in the financial sector in every single month between October 2021 and June 2022, collectively pulling out ₹1.09-lakh crore. Prior to this, the foreign investors made a net investment of ₹1,428 crore in the sector in September 2021.
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“Indian banks are well provided for stress assets and the loan book seems to be clean as compared to previous cycle. During the Covid-19 pandemic, most of the private banks have also raised capital and are well capitalised. On the asset and liability management (ALM) side, banks are also well positioned,” Chawla added.
Massive outlfow
In the overall market too, FPIs were net sellers between October 2021 and June 2022, recording a massive outflow of ₹2.46-lakh crore during this period. The foreign investors turned net buyers in July with a net investment of ₹4,989 crore and ₹51,204 crore in August, the highest monthly inflow in 20-months.
“In the context of the present slowdown in global growth, India has the best growth and earnings story for this year and next. So FPIs are back in India. Financials is among the best growth segments in India. For banks particularly, asset quality has improved significantly, and credit growth is now running at 14 per cent. There is clear visibility in earnings growth in financials,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
IT sector
Historically, FPIs have been heavy-weights in the banking and IT sectors. Although they turned net buyers in the banking counter, FPIs are yet to make a big splash in the IT sector. After pulling out ₹35,583 crore from the sector during April and July, FPIs made a net investment of ₹397 crore in August.
“IT sector has not been the sought-after sector for a few months now. Many institutional investors feel that the prospects of the sector have taken a beating from the growth slowdown / recession fears in the developed world. There is fear that the likely recession will adversely impact tech spending by firms in the developed markets,” Geojit’s Vijayakumar said.
Baroda BNP Paribas Mutual Fund’s Chawla said the IT sector is also facing a host of challenges including employee cost (the biggest cost component of IT companies), elevated attrition in the sector, high wage inflation impact IT company margins and rupee depreciation against other currencies.
Other sectors which saw major FPI inflows in July and August include Healthcare (₹8,716 crore), FMCG (₹7,770 crore) and Telecom (₹6,611 crore).
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