Sectors Foreign Investors Bought And Sold In First Half Of February

Foreign investors continued to pull money out of the Indian equity markets in the first half of February, driven outflows from energy and material sectors, according to a report by Emkay Global.

Overseas institutional investors sold equities worth $582 million (Rs 4,821 crore) in the first half of February.

This follows the January selloff of Rs 28,852-crore, the highest since Rs 50,203-crore outflow in June. Foreign institutions have sold Indian stocks worth Rs 30,104 crore so far in 2023.

"Outflows from India have been triggered mainly by the high valuations in India and inflows into other markets have been triggered by their relatively cheaper valuations," according to VK Vijayakumar, chief investment strategist at Geojit Financial Services. "The opening up of the Chinese economy and improving prospects there has played an important role in the massive flows to China," he said. 

But FPI selling has eased and overseas investors have even turned buyers in some recent days, he said. But "they might sell again at higher levels."

According to Vijayakumar, FPIs have been buyers in auto and auto components and construction. "They were sellers in banking and financial services in which they are sitting on good profits."

The energy sector witnessed the largest outflow at $756 million or Rs 6,263 crore in February, following a withdrawal of $584 million or Rs 4,772 crore in January. The sector has seen outflows of $2.3 billion in the last six months.

"The sector's underweight vs MSCI Index has increased sharply from 0.83% at the start of 2023 to 2.03% on Feb. 15," according to the Emkay Global.

The materials sectors saw the second largest outflow at $318 million or Rs 2636.25 crore, after an inflow in January. The selling in first half of February was led by $235 million or Rs 1,948 crore outflow in metals & mining subsector and $50 million or Rs 411 crore selling from chemicals subsector. Cement witnessed net buying of $13 million or Rs 111 crore.

"The sector’s underweight vs MSCI increased by 57 bps from 1.88% to 2.43%, while the 6-month average UW has been 2.07%," according to the note.

The financial services sector saw an inflow of $286 million or Rs 2,368 crore in the first half of February compared with an outflow of $1,040 million or Rs 8,503 crore in the second half of January.

"FIIs are overweight in the sector by 8.42%, an increase in stance of 34 bps. It has steadily increased from 7.01% in Sept. 2022 mainly on anticipation of HDFC Bank’s inclusion in the MSCI Index."

The software and services sector saw the second largest inflow at $214 million or Rs 1774.08 crore. That followed net buying of $162 million or Rs 1,324 crore in the second half of January. The sector had seen a selloff of $424 million or Rs 3,456.8 crore in the first half of January.

"During this period, Nifty I.T. index increased by 4%. The sector is underweight vs MSCI Index by 4.58% while the 6-month average UW is 4.38%," the note said.

The healthcare sector saw inflows of $133 million or Rs 1,099 crore, while the automobile & components sector witnessed buying worth $116 million or Rs 964 crore in February.

Automobile & components witnessed the largest inflow in the second half of January at $256 million or Rs 2,089 crore.

The capital goods sector witnessed inflow at $182 million or Rs 1,509 crore in the first half of February.

"The sector has seen consistent inflows from FIIs, total investment in last six months is $2.7 billion," the note said. "Capital goods sector has seen its stance change from underweight by 0.4% to overweight by 0.47% during the last three fortnights."