Financials, FMCG get nearly half of FPI flows in August, says report

Nearly half of the overseas flows into the markets in August went into stocks in the financial (banks included) and fast-moving consumer goods (FMCG) segments.

The financial sector attracted nearly $1.6 billion of inflows, while consumer stocks got $1.4 billion, data analysed by IIFL Alternative Research showed. Pharmaceutical stocks also attracted over $1 billion of foreign portfolio investor (FPI) flows.

In August, FPIs bought shares worth $6.4 billion (Rs 51,204 crore) — most since December 2020. The robust inflows meant most sectors saw positive net inflows.

FPI inflows into financial stocks in August 2022 were the highest since February 2021, when they bought shares worth $1.96 billion. Such a huge inflow comes after large outflows worth $6.38 billion in the last six months and $2.4 billion in one year.

“Since January 2022, banking credit growth has improved consistently. And, this happened after the bad-loan cycle had peaked.
 

Valuations in the financial sector are still not stretched. Most banking stocks are trading at a discount to their historical peaks if you look at the price to adjusted book value,” said G.Chokkalingam, founder of Equinomics. Consumer goods stocks, known to be safe-haven plays, also generated huge interest among FPIs.

“FMCG stocks are considered to be the most defensive bets whenever there is financial turmoil globally. Even during the Lehman crisis, the fall in FMCG stocks was minimal, compared to others,” said Chokkalingam.

Inflow into auto stocks and capital goods — where FPIs bought shares worth $0.42 billion — was the second highest since January 2021. At 5.6 per cent, FPI allocation towards the auto sector is the highest since March 2019. 

Meanwhile, the allocation of capital goods at 2.5 per cent continued to rise for the fourth consecutive month. The information technology (IT) sector witnessed net buying worth only $50 million. Although this helped end an 11-month selling streak, given the size of the IT sector, the flows were negligible.

In the last six months, IT stocks witnessed selling worth $ 4.7 billion, and in the past one year, it was worth $10.8 billion. This is the second-highest outflow after the financial sector.

Despite the positive flows, the allocation in IT at 10.7 per cent dropped for the fifth consecutive month and is the lowest since March 2018.

“Despite underperforming Nifty in the first half of CY22 by a huge 19 per cent, NSE IT has continued to underperform Nifty in July by 4 per cent and by 6 per cent in August. Yet IT stocks trade at 1 standard deviation above their 10-year averages, offering limited valuation comfort. We expect further cuts to FY23-24 EPS estimates, resulting in their continued underperformance. Hence, we reiterate our cautious stance on the IT sector with Infosys being our sole Buy,” Jefferies said in a note on Tuesday.

Chokkalingam said the lack of valuation comfort and margins not improving — notwithstanding depreciation in the rupee — had led to FPIs moving money out of the IT sector in the previous months.

“What has changed now is the structural issue with the employee cost.  Large IT companies have not announced any major salary revisions. And, rupee depreciation is value accretive to the sector. Hence, it is emerging as an attractive sector,” said Chokkalingam.

Allocation to power stocks, at 5.5 per cent, is the highest since January 2018. In the last one year, FPIs have increased allocation by 2.6 per cent in the sector. The allocation to logistics stocks — at 1.7 per cent — remained the highest since January 2018.