Bank, auto, FMCG: Sectors on FPIs' radar as they turn focus back on India

Banks, information technology, capital goods and the automobile sectors could be on foreign portfolio investors’ radar as they turn back focus to Indian equities after a gap of around nine months, said analysts. While most analysts believe that the worst could be over as regards FII/FPI selling – and hence equity markets – they do warn against intermittent selling on the basis of macro-economic and geopolitical developments and how the policy-makers react to it.

Foreign Portfolio Investors (FPIs) put a brake on their merciless selling in July as they bought equities worth Rs 4,989 crore in July, data showed. Even on August 1, they bought equities worth Rs 1,470 crore, according to NSDL statistics.

The swing in favour of Indian equities comes after a brutal sell-off where FPIs sold equities worth Rs 2.56 trillion since October 2021. This was the longest selling streak by them since the global financial crisis (GFC) of 2008 when they remained net sellers for seven months.

Among sectors, FPIs reduced their stake in IT sector (1.18 per cent), Metals and Mining (0.76 per cent), Financial Services (0.31 per cent), and Consumer Durables (0.3 per cent) between April and June of fiscal year 2022-23 (FY23), wrote analysts at YES Securities in a recent note. On the flip side, they upped their stake in Oil and Gas (1.4 per cent), Automobile and ancillaries (1.1 per cent), Fast Moving Consumer Goods (FMCG; 0.68 per cent), Capital Goods (0.15 per cent), and Consumer Services (0.06 per cent).

More recently, during the fortnight ended July 15, they bought equity stakes in sectors like Capital Goods (Rs 499 crore), Construction (Rs 338 crore), Construction Material (Rs 77 crore), FMCG (Rs 2,085 crore), Healthcare (Rs 818 crore), Media and Entertainment (Rs 100 crore), and Power (Rs 1,039 crore), NSDL data suggests.

"Better-than-expected results from financials have resulted in an increased demand for these stocks. A change in FPI strategy has led to short covering in financials and IT stocks, which has supported the recent rally," says VK Vijayakumar, chief investment strategist at Geojit Financial Services.

Investment Strategy

Given this trend, analysts suggest investors start nibbling selectively in stocks from the financials, IT, and capital goods sectors from a medium-to-long term perspective.

"FPIs have typically been overweight on financial services stocks. However, the fear of quantitative tightening by the US Federal Reserve, and concerns over comparatively higher valuations of Indian stocks prompted them to trim their holdings and reduce their weight to around 30 per cent from over 35 per cent. As the selling moderates, and FPIs become net buyers, the IT index and Banking sector index have gained strength, auguring well for the sector," said Nitin Raheja, executive director and head of discretionary equities at Julius Baer Wealth Advisors.

Vijayakumar of Geojit Financial Services, meanwhile, suggests that along with FPI buying, easing of chip shortage crisis, and robust demand will aid the auto segment, particularly the passenger and commercial vehicles segments. Impressive credit growth in the economy and green shoots of capital expenditure (capex), he believes, will lend support to the capital goods segment.

Those at Edelweiss Securities are overweight on domestic auto, FMCG, pharma, private banks, insurance, and cement sectors; and underweight on metals, industrials, export auto, energy, IT, and durables.