As FPIs continue to sell, outflows likely to rise before inflows revive

Synopsis

"The financial services sector has the biggest weight on benchmark Nifty; so when there is broad-based selling, banking and financial services' share in foreign selling tends to be higher," said U R Bhat, co-founder & director, Alphaniti.

Mumbai: Overseas investors dumped shares worth ₹49,481 crore in the first half of April, with financial services continuing to face the worst of the foreign capital exodus for the third consecutive fortnight. To be sure, the pace of selling appears to have reduced toward the second-half of the month.

Almost 40% of the selling between April 1 and 15 was in this sector, as it witnessed outflows worth ₹19,152 crore. This comes after foreign investors offloaded shares worth over ₹60,000 crore in the sector in March, which was the highest since 2012.

"The financial services sector has the biggest weight on benchmark Nifty; so when there is broad-based selling, banking and financial services' share in foreign selling tends to be higher," said U R Bhat, co-founder & director, Alphaniti.

The intensity of foreign selling increased amid the US-Iran conflict since February 28, with the banking, financial services and insurance (BFSI) sector bearing the brunt of the outflows.

"Selling pressure has eased after the first-half of April, as a ceasefire and the possibility of a deal signalled that peak anxiety may be behind us," said Pankaj Pandey, head of retail research at ICICI Securities.

In the first-half of April, consumer services witnessed foreign outflows worth ₹5,336 crore while healthcare and automobiles saw selling worth ₹4,481 crore and ₹3,704 crore in the same period. Overseas investors had reduced stake in both sectors in March.

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Cruel Summer Foreign investors dump almost ₹50kcr of shares in first fortnight of April, most in BFSI followed by consumer services, healthcare and auto

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Global investors sold shares worth ₹3,704 crore in the automobile sector after withdrawing shares worth ₹12,498 crore in March. Bhat said global investors will need some time to make up their mind on allocating to India and outflows could accelerate before any revival in foreign inflows.

"There have been news reports that Iran is not willing to meet and negotiate with the US on Wednesday - when the ceasefire ends," said Bhat. "This could jeopardise earnings trajectory as oil prices may remain high as long as Strait of Hormuz remains shut - and keep foreign capital at bay."

Overseas investors sold shares worth ₹67,081 crore across 21 sectors in the second-half of March- the highest fortnightly selling since second-half of October 2024 when they dumped shares worth ₹71,502 crore.

"Global investors remain cautious and are not in a hurry to deploy funds as they still view Indian market valuations as rich," said Pandey. "The only solace has been strong domestic inflows, despite limited returns over the past 18 months."

Foreign inflows this fortnight stood at ₹1,340 crore across power, utilities, diversified and the sector earmarked as 'Others', the lowest fortnightly inflows since first half of January 2025.

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