IT, banking, energy topped selloff in Feb as FPIs pulled out $4.7 bn

Selling was seen in most sectors save metals and mining, pharma and telecom

Information technology (IT), banking and financial services, oil & gas, and FMCG bore the maximum brunt of foreign portfolio investor selling (FPI) last month.

In February, FPIs sold shares worth $4.7 billion and selling was seen in most sectors except metals and mining, pharma and telecom.

The FPIs sold IT shares worth $1.45 billion. The selling affected the sector's performance. On a year to date basis, the BSE IT index is down 7.7 per cent.

In February, FPIs sold shares worth $1.32 billion in the banking and financial sector, $638 million in the oil and gas sector and $584 million in FMCG, as per a report by IIFL Securities.

FPIs allocation to banks and financials has gone down from 33.4 per cent a year ago to 30.3 per cent in February.

Analysts said several structural changes had taken place in the banking space over the past 5-8 years, because of which it may not create the kind of wealth it did in the past.

"Credit growth of the banking sector as a whole has settled at 8 per cent as against strong double-digit growth seen in the recent past. The consolidation of public sector banks into eight-strong banks will also increase the competition. These structural changes along with rising inflation and interest rates regime would call for investors to re-evaluate the kind of excessive weightage given to the banking sector,' said G Chokkalingam, founder, Equinomics.

The metals and mining sector saw reasonable inflows worth $381 million on the back of rising commodity prices.

"Even before the Russia -Ukraine war, commodity prices were going up due to improving economic activity, and supply constraints due to the plant shut down in China. And some supply disruptions. Valuations were comfortable as they were underperforming, "said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services.

The pharma sector saw inflows worth $88 million, and the telecom sector worth $60 million.

"Telecom sector is not impacted by the rise in commodity prices or geopolitical issues. The domestic-focused companies in the sector have been performing better," said Khemka.

In the last one year, FPIs have sold $7.9 billion and $6.78 billion in banking & financials and IT, respectively. However, last year, they bought shares worth $2.86 billion in FMCG, in the insurance sector they pumped in $1.14 billion, and another $1.3 billion in telecom stocks. The FMCG buying also includes a few of the new age retail IPOs.

The allocation in the cement and construction sector is at a 12-month low at 1.8 per cent. In contrast, the allocation to power stocks is at 4.3 per cent, the highest level since January 2018.

For the oil and gas sector stocks, the allocation is at the highest levels since October 2020 at 12.3 per cent.

In February, FPIs were net sellers for a sixth straight month. Experts say overseas investors would once again start looking at India favourably once certain headwinds ease.

"India is likely to post the fastest growth in GDP in FY2023 after a stagnation of two years. After the Ukraine War, it won't be easy for FPIs to re-enter Russian markets aggressively or increase allocation to Taiwan. So the Indian market can be a relatively safer one. Moreover, the valuation of Indian markets moderated, and once the geopolitical tensions are resolved, the oil will crash and many global institutions will upgrade the outlook of Indian markets,' said Chokkalingam.