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Banking and financial sector stocks are the biggest gainers of the record foreign portfolio investor (FPI) inflows into Indian equities in fiscal year 2021 (FY21). Driven by ample liquidity in global markets and early signs of economic recovery in India, FPIs pumped in a record investment of ₹2.74-lakh crore into Indian equities in FY21.
Of the total inflows, banks and other financial services (including FIs, NBFCs, AFCs, HFCs) alone netted ₹77,200 crore or 28 per cent of the total net inflow.
“Presently, the Indian economy is on a strong rebound and credit demand has started improving. The low-interest rate regime has become a major tailwind for segments like housing and automobiles,” VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, adding, “The prospects for large commercial banks, particularly the leading names in the private sector, housing finance companies and fintech companies look bright. FIIs moved into financials anticipating this opportunity.”
In contrast, FPIs were net sellers in the financial services sector in FY20 with a net outflow of ₹7,690 crore, which was preceded by a net inflow of ₹6,194 crore in FY19.
Improving stress in sector
Market experts say that lesser-than-expected stress in the banking sector and faster economic recovery have incentivised foreign investors to bet on the financial services sector, which is the bedrock of economic activity and a direct gainer of economic rebound.
“Banks have already been disclosing NPAs on a pro-forma basis since the last two quarters. The fourth quarter should witness a more realistic stress which will not be a big surprise,” Nirali Shah, Head- Equity Research, Samco Securities said, adding, “The actual stress impact will be far lower on banks’ profitability than envisaged. All this gives FPIs the needed optimism to channelise their funds to banks and NBFCs despite the overhanging threat of NPA spike.”
Sectors attracting FPIs
A sector classified as ‘Others’ is the second highest gainer of FPI investment in FY21 with a net inflow of ₹51,267 crore.
Oil & Gas (₹21,375 crore), Household & Personal Products (₹19,182 crore) and Insurance (₹15,390 crore) are the other major gainers in the equity segment.
“The Oil &Gas segment received considerable interest following the bold privatisation announcements in the budget. Segments of household and personal care products have done well during the lockdown and still continue to benefit from work-from-home,” Geojit’s Vijayakumar said. Samco Securities’ Shah said that insurance is at the forefront in terms of FPI inflows, especially, because insurance in India is still highly underpenetrated and the recent hike in FDI limit to 74 per cent bolstered foreign capital towards India to meet its growth requirements.
Cyclical sectors like Automobiles & Auto Components (₹14,255 crore) and Capital Goods (₹12,672 crore) are the other major gainers of FPI inflows. Geojit’s Vijayakumar said the capital goods segment is expected to benefit from the huge infrastructure boost by the government.
“The National Infrastructure Pipeline, which envisages an investment of ₹111 lakh crore over the five-year period between 2020 and 2025 will hugely benefit the capital goods sector,” he added.
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