A 50 subject one dollar note sheet is inspected after receiving a serial number and the U.S. Treasury and U.S. Federal Reserve seals at the U.S. Bureau of Engraving and Printing in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

Banking Sector Is Back To Being The Favourite Of Foreign Investors

The money infused by foreign investors in Indian markets rose to a 15-month high in February after the Reserve Bank of India adopted a dovish stance, signalling interest rate cuts in the future.

Overseas investors pumped in nearly $2.4 billion in the equity market last month—the most since November 2017—after pulling out about $600 million a month ago, according to data available on National Securities Depository Ltd.'s website.

Foreign investors turned net buyers of bank stocks for the first time in eight months, deploying 60 percent of the funds—or $1.3 billion—in the sector. The sector received the highest foreign monthly inflows in two years, according to NSDL data compiled by BloombergQuint. Of this, $761 million came in between Feb. 16 and Feb. 28.

The inflow was despite the sector’s underperformance. The NSE Nifty PSU Bank Index and the NSE Nifty Private Bank Index fell 8.8 percent and 1.3 percent, respectively, in February, compared with the Nifty’s 0.36 percent decline.

Banking Sector Is Back To Being The Favourite Of Foreign Investors

To be sure, February foreign inflows into individual banking stocks were not available. But Kotak Mahindra Bank Ltd. has seen FII holding rise from 39.36 percent as of December to 40.4 percent on Feb. 26, according to data by NSDL and BSE. That followed ING Group's exit by selling its remaining 1.2 percent stake through block deals. The NSDL on Feb. 26 added the stock to its red-flag list, indicating that the company was close to its FII investment limit. That promoted the bank to increase the foreign investment limit by 2 percentage points to 45 percent.

Kotak Mahindra Bank’s shares declined 3.4 percent during the month, the worst performance among private lenders after ICICI Bank Ltd.

Yes Bank Ltd. was the top performer last month, rallying over 19.1 percent, followed by RBL Bank Ltd.’s 1.9 percent gain. The rise came after the RBI found no divergence in its bad loans and provisioning for the year ended March 2018. The private lender’s shareholding pattern will be updated at the end of the quarter.

Non-banking lenders and electric and other utility companies were among the sectors to receive most investments.

The food, beverages and tobacco sector witnessed the highest outflows, with overseas investors turning net sellers for the first time since October 2018. They sold shares worth $107 million.

Foreign investors pulled out $91 million each from the capital goods and household and personal products sectors.