Foreign Investors Turn Buyers Of Indian IT Stocks First Time In Nine Months
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Foreign Investors Turn Buyers Of Indian IT Stocks First Time In Nine Months

Foreign portfolio investors turned buyers of software and services shares for the first time in nine months as the rupee weakened.

Overseas investors infused $687 million into IT stocks in December, the highest inflow into the sector in 21 months, according to data released by the National Securities Depository Ltd. That contributed 67 percent of net equity flows in December, the largest for a single category.

The NSE Nifty IT Index advanced 4.36 percent during the period, the most in eight months, led by the rally in Mindtree Ltd., NIIT Technologies Ltd. and Tata Consultancy Services Ltd.

Rising inflation in India and a surge in oil prices suggest further weakness in the rupee, prompting the overseas investors to buy more technology shares, according to Ross Cameron, head of (Japan office) Northcape Capital Ltd.—an investment management firm. “The valuation in technology shares are cheaper compared to the shares of other sectors such as consumer staples, making the sector attractive,” Cameron told BloombergQuint over the phone.

IT services providers bill a majority of their U.S. and global clients in dollars. So, a weak rupee would mean higher revenue for the companies. The domestic currency appreciated 0.5 percent against the dollar in December after depreciating nearly 2 percent in the preceding two months.

Also, Brent crude rallied 5.7 percent in December, the most since April. That’s also the second straight month of a rise in prices of the Asian benchmark.

Overall, foreign investors remained net buyers for the fourth straight month since the government rolled back the higher tax surcharge on them—a move that had led to a selloff in July and August.

Shares non-banking financial companies witnessed the second-highest foreign fund inflows. FPIs bought $313 million worth of NBFC shares, the highest in the sector in seven months.

Inflows into software and services companies and NBFCs were followed by oil and gas, banks and insurance sectors.

What Foreign Investors Sold In December

The capital goods sector witnessed the highest foreign fund outflows in December. The overseas investors pulled out $252 million from the stocks in this category, the biggest outflow in the sector in 14 months.

That came as the S&P BSE Capital Goods Index declined for the second consecutive month. The 22-share gauge fell 2.5 percent in December, led by the declines in Bharat heavy Electricals Ltd., V-Guard Industries Ltd. and Kalpataru Power Transmission Ltd.

Telecom witnessed the second-highest foreign fund outflows as overseas investors remained net sellers for the fourth straight month, pulling out $210 million, the highest in the sector in a year.

The sector was followed by food, beverages and tobacco, and marine port and services with foreign investors pulling out $143 million and $110 million, respectively.

Some Key FPI Transactions

To be sure, December foreign inflows into individual stocks were not available. However, offer-for-sale in HDFC Asset Management Company Ltd. during last month revealed that its promoter Standard Life Investments proposed to sell 47.5 lakh shares or 2.23 percent equity, with an option to sell additional 38.5 lakh shares or 1.81 percent equity. The offer-for-sale witnessed 1.24 times demand, according to the NSE data.

Also read: Top Mid-Cap Stock Picks Of Analysts For 2020

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