Most And Least Favoured Sectors For FPIs In India
India’s shrinking economy hasn’t stopped a relentless flow of foreign money into domestic equities this fiscal.
The net foreign portfolio investment into India stood at $26.66 billion between April 1 and Dec. 15, 2020, according to data compiled from National Securities Depository Ltd. The flows have also remained positive for the fifth straight fortnight.
Overseas investors were attracted to emerging markets, including India amid low-interest rates in developed countries and surplus global liquidity. Better-than-expected corporate earnings, hopes of a successful Covid-19 vaccine, an increase in India's weight in the MSCI Emerging Market Index, and weakness in the dollar further fueled inflows. Bloomberg’s Dollar Spot Index has dropped from 99.7 on April 1 to 90.5 on Dec. 15.
An overwhelming inflow of foreign funds even helped India’s benchmarks to scale new peaks as they recovered from the March selloff triggered by the coronavirus pandemic. That’s despite two consecutive quarters of contraction in the nation’s GDP.
“Globally, passive investments are becoming the preferred choice for most FPIs, which are slowly catching up in India too. Hence, benchmark Indices like Nifty 50 and good quality mid-cap companies are able to consistently move up the rung in terms of market cap,” said Jaideep Hansraj, managing director and chief executive officer at Kotak Securities, during an annual media round table presentation.
Here’s a sector-wise look into the trend of foreign flows...
Financial services witnessed the highest foreign funds inflow among the top five most-favoured sectors during the reported period.
That was led by banks, which attracted $6.36-billion investment, as their asset quality improved. “Private sector banks witnessed massive earnings upgrades on improving asset quality outlook and recovery in business trends,” according to Motilal Oswal’s Bulls & Bear report for December 2020.
Overseas investors pumped into the consumer sector as demand for essentials and discretionary goods improved, helped by the rural sector on account of a rise in income, good monsoon and government support. “From a demand standpoint, staples and essential products continue to benefit from Covid-19-led tailwinds on health, hygiene and immunity-boosting products,” the Motilal Oswal report said.
The auto sector remained among the top draws despite high valuations compared to their historical average. Motilal Oswal expects passenger vehicles and tractors to grow on a low inventory. The demand recovery in the commercial vehicle segment is expected toward the latter part of 2020-21.
The oil & gas sector attracted foreign inflows as the crude price rose, demand for petroleum products revived, and industrial and transportation activities picked up.
Among the least favoured sectors are telecom, utilities, textiles, coal, and transport services.
Overseas investors pulled out the most from the telecom sector during April 1-Dec. 15, possibly due to a drop in average revenue per user, tariff war, adjusted gross revenue liabilities and 5G spectrum cost management.
That’s followed by the utilities and power sectors as demand from industries and railways dropped amid the pandemic. And a muted domestic and international demand for fabric, owing to the work from home culture, hurt flows into the textile sector.