Foreign portfolio investors (FPIs) have pulled out close to ₹20,000 crore from the banking and financial sectors in the first six months of the current fiscal even as they increased their exposure on stocks in the defensive sectors such as consumer goods, IT, pharma and telecom.
According to sector-wise FPI flow data compiled from depositories, FPIs pulled out ₹18,700 crore from the financial services sector between April and September. Of the total outflows, ₹13,872 crore went from banking sector while ₹4,827 crore was pulled out from ‘other financial services’, which covers financial institutions, non-banking finance companies (NBFCs) and housing finance companies (HFCs).
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Within the banking sector, the equity segment witnessed an outflow of ₹12,964 crore during April-September period while the debt segment witnessed an outflow of ₹1,014 crore during the period. On the other hand, the other financial services category witnessed an inflow of ₹1,159 crore in equities and outflow of ₹5,797 crore from debt in the first two quarters of the current fiscal.
“The financial services sector, particularly banks, has been a laggard in market performance in 2021. Private sector banks have been the market darlings for many years when GDP growth was impressive. With growth taking a hit after the outbreak of the pandemic and the MSME segment in deep trouble, credit growth has been poor and NPAs on the rise,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
“The market reflects this reality of tepid performance of the banking sector. Clearly, the market leaders YTD are Nifty Metals, Nifty Realty and Nifty IT with Nifty Bank lagging far behind vis-a-vis Nifty 50 return on a YTD basis,” he added.
FPIs have been increasing their bet on defensive sectors amid increasing volatility and hawkish policy signals from global central banks. The ‘household & personal products’ sector witnessed the highest FPI inflows in the last six months at ₹6,725 crore followed by consumer durables ( ₹6,580 crore), retailing (₹6,340 crore), telecom (₹5,773 crore) and insurance ( ₹2,881 crore).
With credit growth likely to pick up in the second half of the current fiscal, market experts believe that FPIs focus will be back to the banking and financial services sector in the coming months. “The concerns regarding the potential rise in NPAs have kept the FIIs nervous in the financial services space. Even though economic activity has seen a healthy recovery, loan growth has not picked up meaningfully yet. All these factors have led to outflow in the past. However, we feel the long-term prospect for the sector looks robust and investors can continue to invest selectively in this space,” said Ajit Mishra, V-P- Research, Religare Broking.