Foreign investors continue to pull out from financials in first half of May

Synopsis

Foreign investors continued to divest from Indian financials in early May, withdrawing ₹17,960 crore due to concerns over tighter banking margins and lower appeal compared to other emerging markets. Overall outflows reached ₹38,443 crore across 19 sectors, with services attracting nearly 60% of the limited inflows.

Mumbai: Foreign investors continued to pare exposure to financials in the first half of May, pulling out ₹17,960 crore from the sector, nearly 47% of the overall foreign outflows during the period, amid concerns over tighter banking margins and India's lower appeal compared to other emerging markets.

"Banks are facing headwinds from higher bond yields, which could impact treasury income, while implementation of Expected Credit Loss (ECL) norms, requiring higher provisioning, is expected to keep return ratios volatile in the near term," said Pankaj Pandey, head of retail research at ICICI Securities.

Between January and April, overseas investors dumped more than ₹91,000 crore worth of financials, a sector with the highest foreign ownership in India.

The Bank Nifty has fallen nearly 7% over the past month, compared with a 4% decline in the benchmark Nifty.

"The valuations in the banking space remain reasonable, and the foreign outflows in the sector are due to these investors wanting to cut exposure to India as a whole, as they find better bets in the rest of the emerging markets," said Siddarth Bhamre, head of research, Asit C Mehta Intermediates. "They cannot reduce weightage in India without selling banking stocks."

Agencies

Sector accounts for nearly 47% of outflows in the first-half of May

Overall, foreign investors sold shares worth ₹38,443 crore across 19 sectors in the first half of May, according to NSDL data. Oil & gas saw outflows of ₹6,885 crore, while telecom stocks witnessed selling worth ₹2,542 crore, extending the pressure seen in April.

Overseas investors bought shares worth ₹11,395 crore across four sectors, with nearly 60% of the inflows directed in the services sector. "The services sector, which includes Adani Group stocks such as Adani Ports and Adani Enterprises, performed well after resolving issues related to the US Securities and Exchange Commission (SEC)," said Pandey.

Pandey said that the MSCI rebalancing next week could draw some foreign inflows, but that is a one-time event.

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