Foreign portfolio investors (FPIs) pulled out close to ₹30,000 crore from the banking and financial services stocks in the first eight months of the current fiscal. The outflow comes in the wake of concerns over steep valuations of underlying sectoral stocks, some elements of profit-booking and FPIs pruning their exposure to the overweight sector.
According to latest depositories data, FPIs sold financial services sector stocks worth ₹29,136 crore between April and November. Of this, the banking sector alone saw outflows of ₹28,057 crore while the ‘Other financial services’ category saw a net outflow of ₹1,078 crore. The ‘Other financial services’ comprise stocks of financial institutions (FIs), non-banking financial companies (NBFCs), housing finance companies (HFCs), etc.
“FPIs have been in a sustained selling mode for several months now. This actually accelerated in November when many of the leading foreign brokerages downgraded India from ‘overweight’ to ‘neutral’ due to stretched valuations of Indian stocks,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “The banking sector accounts for the largest component of FPIs’ total AUM. So, if they want to sell and leave the market, they have no other choice but to predominantly sell banking stocks. Therefore, selling in the sector is more on account of the portfolio construct of the FPIs,” he added.
Highest monthly outflow
FPIs have been net sellers in the banking and financial services sector in five out of eight months in the current fiscal. More than 50 per cent of the total outflow in the current fiscal, or ₹15,773 crore, was pulled out in November alone. This is the highest monthly outflow from the sector in the last 18 months. Prior to this, FPIs pulled out ₹19,956 crore from the sector in March 2020 when the overall equity market witnessed one of its worst crashes on fears over the spread of Covid-19 pandemic.
On a broader level, too, foreign investors have been net sellers in the Indian secondary market in the current fiscal due to rising global interest rates, fear of stimulus unwinding by major central banks, and attractive valuation of stocks in other emerging markets.
Between April and November, FPIs pulled out ₹67,033 crore from the secondary market (stock exchanges) while investing ₹56,027 crore in the primary market, subscribing to a slew of public issues that flooded the capital market this year. As a result, the net outflow from equities during the first eight months stood at ₹10,965 crore. Sectors like retail (₹28,112 crore), telecom (₹7,373 crore), realty (₹4,995 crore) and consumer durables (₹5,985 crore) witnessed net inflow during this period.