FPI selling picks up in financials; shift from high-valuation stocks to defensive stocks

Foreign Portfolio Investors (FPIs) were net sellers in the Indian equity market during the first fortnight of August 2024, with a significant preference for defensive sector stocks over financial stocks. FPIs were net sellers of Indian stocks worth ₹18,824 crore from August 1-15, mainly through disinvestment from financial services, metals and mining, construction materials and automotive sectors.

This came after FPIs poured in a total ₹32,365 crore or $3.87 billion flowed into the Indian stock market in July, marking the second-largest monthly inflow in 2024.

The financial services sector was hit the hardest, with FPIs withdrawing from their operations. ₹The value of the shares during the period from August 1 to 15 was Rs 14,790 crore, after the sell-off ₹7,648 crore in July, according to data from the National Securities Depository of India (NSDL).

The metals and mining sector also saw significant outflows, with foreign investors pulling out ₹2,668 crore in the first week of August, after an inflow was recorded ₹7,310 crore in July.

The construction materials sector recorded FPI outflows of ₹2,036 crore, while the auto and auto components sector, as well as capital goods stocks, posted losses on account of FPI selling ₹1628 crores and ₹NSDL data shows that it earned Rs 1,089 crore between August 1 and August 15, respectively.

“The FPI outflows witnessed on August 24 were mainly driven by a combination of global and domestic factors. Globally, concerns about the end of the yen carry trade, potential global recession, slowdown in economic growth and ongoing geopolitical conflicts led to market volatility and risk aversion. Domestically, after being net buyers in June and July, some FPIs may have decided to book profits following the strong growth in the previous quarters,” said Vipul Bhowar, Head of Listed Investments at Waterfield Advisors.

Moreover, mixed quarterly results and relatively higher valuations made Indian stocks less attractive, he noted.

“Despite these factors, India’s strong economic performance, including GDP growth, reduced fiscal deficit, manageable current account deficit, and strong sectoral growth and industrial production, continues to attract a large number of FDIs, indicating that FDI flows into India are expected to continue,” Bhowar said.

FPI Purchase

On the other hand, FPIs maintained a net buying position in defensive sectors like healthcare and fast-moving consumer goods (FMCG). The healthcare sector attracted the largest FPI inflows, totaling ₹3462 crore. Then the consumer services sector with ₹2196 crore inflows and the consumer goods sector where FPI investments stood at ₹1,785 crores.

Additionally, FPI bought ₹Energy stocks stand at Rs 1,169 crore, rebounding after significant sell-off ₹3,796 crore in July.

“From a macro perspective, India has been enjoying the best growth and inflation dynamics in the world, while the corporate earnings cycle continues to broaden, making equities expensive. Expensive valuations and a rise in global market risks are likely to sustain FPI flows in the near term. This is preventing a slump in Indian equities, while the underlying fundamentals remain strong, which we believe is positive for the market,” said Vinod Karki of ICICI Securities.

FPI Trend

Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, noted that the latest significant trend in FPI flows that became evident in August is continued selling by FPIs through the stock exchange while continuing to invest through the ‘primary market and other’ category.

“This difference in FPI behaviour is due to differences in valuations. Primary market issues are trading at comparatively lower valuations, while valuations in the secondary market remain high. So, FPIs buy when securities are available at fair valuations and sell when valuations in the secondary market are stretched,” Vijayakumar said.

This trend is expected to continue as India is currently the most expensive market in the world and it makes sense for foreign investors to sell assets there and move money to cheaper markets.

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