FPIs turn buyers, shop for autos, consumer durables after long break

These overseas investors bought shares close to ₹5,000 crore in July and have already invested ₹8,480 crore in August so far. This has certainly lifted the sentiment in the markets, as the Sensex significantly rose 8.5% in July after a contraction in the past three months.

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“FPIs have turned buyers recently, primarily driven by a little improvement in the macro factors, fuelled by the fall in the commodity prices. India would be one of the biggest beneficiaries of falling commodity prices,” Arun Malhotra, founding partner & portfolio manager at CapGrow Capital advisors, said. “Additionally, the valuation of large-caps has come down, while the commentary on growth is still strong. All this has reduced the selling pressure and led FIIs to resume buying.”

Riding on strong underlying consumer demand, a few sectors have found favour with FPIs, including automobiles and consumer durables, which saw net investments of ₹1,034 crore and ₹453 crore, respectively, in the fortnight ended 31 July. The two sectors gained 7.3% and 14% respectively in July.

Data available with the National Securities Depository Ltd (NSDL) showed that foreign investors had been continuously selling in these two sectors since May. The demand in the automobile sector is gradually picking up as easing semiconductor chip supplies helped passenger vehicles volumes to improve sequentially in July.

Another sector that has found renewed interest from FPIs was financial services, where they bought shares worth ₹2,022 crore in the fortnight ended 31 July, compared to an outflow of ₹1,008 crore in the preceding fortnight.

“The performance from banks has been quite good, with big private sector banks like HDFC Bank, Kotak, ICICI Bank and Axis Bank posting very strong growth in profitability, stable NIMs (net interest margins) and better asset quality,” Malhotra added. They also lapped up shares in telecom and metals and mining.

Meanwhile, FPIs continued to reduce their exposure in information technology stocks, albeit at a slower pace – they pulled out ₹1,452 crore during the period against an outflow of ₹3,213 crore in the previous fortnight.

“Our view is that further sell-off at current valuations in the IT sector from these levels is unwarranted. We see strong aggregate demand to continue, as IT is an enabler for the businesses,” pointed out Malhotra.

Despite a mass exodus, some sectors still remain on the shopping list of these overseas investors, including capital goods and power.

However, it remains to be seen whether this momentum will sustain.

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