Financials and technology (IT) are the only two sectors to see sizeable overseas investment in the first half of 2018. Consumer staples and discretionary, on the other hand, have seen foreign portfolio investors (FPIs) outflows of more than a billion dollars. On an overall basis, FPIs have been net sellers to the tune of nearly over $500 million during the first half.
According to data provided by National Depository Services (NSDL), the financial sector saw net FPI inflows of $1.1 billion during the first half, while the IT space has seen inflows of $1.04 billion. Thanks to the positive stance taken by FPIs, shares of companies in these two sectors have seen a sharp rally. The BSE IT index went up 23 per cent and the banking sector index rose 7.3 per cent for the period under consideration. Sector-wise FPI inflows are released on a fortnightly basis by NSDL.
The BSE Consumer Discretionary index fell nearly 10 per cent in the first half of 2018, as FPIs pulled out $1.5 billion from this sector. Consumer staples sector saw outflow of $1.2 billion. The BSE FMCG index, however, gained nearly five per cent during the first half.
Analysts say foreign investors are increasing their bet on retail-focused private lenders as the country heads towards greater financial inclusion. Not just this year, but FPIs have been net buyers of banking stocks in the past three years. Since 2016, they have pumped in over $6.7 billion into the financial sector. Market players say the FPI interest is largely toward lenders such as HDFC Bank, Kotak Mahindra and IndusInd Bank, while they have stayed away from state-owned banks due to asset quality concerns. The retail-focused banks also enjoy better capital position and offer higher growth prospects. Financial services sector holds the highest weight in both the Sensex and Nifty.
On the other hand, the fresh inflows into IT stocks have come amid weakening of the rupee against the dollar, which makes exports more competitive. Interestingly, IT is the second-largest sector in the benchmark indices in terms of weight. This revival in the IT stocks comes after they underperformed the benchmarks for the last two consecutive years amid concerns of growth slowdown. In the previous two years, FPIs had pulled-out $3.9 billion from IT stocks.
The FPI interest has propped up the shares of private sector lenders and major IT stocks. Shares of HDFC Bank, India’s largest lender in terms of market capitalisation, has gone up 18 per cent this year. Similarly, shares of private lenders Kotak Mahindra Bank and IndusInd Bank have climbed 30 per cent and 22 per cent, respectively. In the IT sector, shares of Tata Consultancy Services (TCS) have gone up 44 per cent, while Infosys shares have gained 33 per cent.