Foreign portfolio investors (FPIs) offloaded shares worth $1.76 billion of financial services companies in the first half of August, the maximum outflow from the sector since January, according to the data from National Securities Depository (NSDL).
The financial services space contributed to around 78% of overall net outflows during the period, with the total selling figure standing at $2.24 billion.
Apart from financial services, shares of metals, construction material makers and services companies also took a beating.
The selling, which was seen in the equities globally, was due to concerns over a potential recession in the US. So far in August, the benchmark Sensex has fallen around 1%, while the Bankex is down 1.6%.
“I suspect that when the big fall in the market came, emerging markets would have seen outflows. Again, India did not fall as much as the other markets. In a way, it could just be that FPIs may have looked at India to balance out losses in other EMs,” said Andrew Holland, CEO of Avendus Capital Alternate Strategy.
So far in the calendar year 2024, FPIs have been net buyers in India with inflows of $2.04 billion. However, the financial services space has seen outflows of $8.12 billion.
Apart from global macroeconomic concerns, experts said weaker-than-expected June quarter earnings and disappointment over HDFC Bank’s MSCI weight increase in two tranches were other reasons behind outflows from the sector.
“We are all waiting for Jerome Powell speech at Jackson Hole later this week,” Holland said, adding that at least 25-basis-point rate cut is definitely on the cards for the next US Federal Reserve meeting.
“Slowing earnings and weak demand amid record-high valuations warrant caution. We anticipate a sectoral churn, with FY24 laggards (consumer, private banks, insurance, and IT) likely to lead while cyclical outperformers (autos, metals, PSUs and industrials) likely to lag,” Nuvama Institutional Equities said.
For banks, Nuvama said, while margins should bottom out, a rise in credit costs needs monitoring. However, experts believe that with the beginning of the rate-cut cycle, bank stocks should start performing well.
While financial services and commodity companies saw outflows from FPIs, defensive sectors like fast-moving consumer goods (FMCG) and healthcare witnessed inflows. FPIs infused $412 million in healthcare sector and $213 million in the FMCG space.