Rs 10,000 crore-blow! 2 biggies faced most of FII outflow brunt

NEW DELHI: With foreign investors or FIIs pulling out Rs 15,000 crore in the first fortnight of the new year 2023, two heavyweight sectors - IT and financials - saw selling worth around Rs 10,158 crore.

The two sectors constitute most of FII investments in India. During the fortnight, FIIs were net sellers to the tune of Rs 6,701 crore in financials while the net selloff in IT stocks stood at Rs 3,457 crore, shows NSDL data.

FIIs also took bearish stance on oil and gas, telecom and auto stocks during the period.

On the other hand, metals and mining sector was the only one to have seen substantial buying of around Rs 2,518 crore during the first two weeks of the month.


FIIs, which sold stocks worth over Rs 1.2 lakh crore in the last calendar year 2022, were net buyers in the last two months of November and December.

With the reopening of the Chinese economy, the FII flow has been redirected to the neighbouring country amid relatively expensive valuation in India.

"The volatility in FII flows is likely to continue in 2023 as FIIs chase lower valuations in underperforming markets/asset classes, like China and Europe, before India. With China reopening and India’s elevated valuation premium, we see a risk of FII outflows in 2023," said Kunal Vora of BNP Paribas.


What should investors do?
Amid impressive credit growth, banks remain the top pick of most brokerages despite the FII selling. On IT, however, many analysts have a cautious stance saying they expect more pain ahead due to global macro factors.

Global brokerage firm BofA Securities expects the start of private capex cycle in FY24 and expects industrial sector, banks, steel and cement sectors to be the key beneficiaries of this upcycle.

BofA Securities' top picks include ABB, Cummins, L&T, HDFC Bank, Axis Bank, IndusInd Bank, Vedanta, Tata Steel, Ambuja Cement and UltraTech cement in the capex theme.

BNP Paribas, which has taken a cautious stance on Indian equities, said it is overweight financials, IT and telecom, while remaining underweight on industrials and domestic consumption space (staples, discretionary/retail and auto).

While the Nifty is flat so far in the month, Nifty IT has outperformed with a 3.5% return despite the FII pressure. On the other hand, Nifty Bank is down 1.5%.

(With data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)