Home / Industry / Banking /  Financials turn flavour of the season for foreign investors

MUMBAI : Foreign portfolio investors (FPIs) net invested $1.4 billion in financial services companies, especially banks, in the fortnight ended 15 November, the most in 21 months, driving the Bank Nifty to successive highs.

The investment was the most since the $1.58 billion they purchased in the fortnight ended 15 February 2021.

FPI buying in financial services accounted for almost two-fifths of their total net investment of $3.54 billion in the fortnight. Their equity assets under custody (AUC) in financial services stood at $194.7 billion in the fortnight ended 15 November, up from $186 billion for the fortnight ended 31 October. In comparison, equity AUC for the financial services sector was $208 billion for the fortnight ended 15 February last year.

Improvement in the asset quality of banks, along with credit growth hitting a record high of 129 trillion in the fortnight ended 21 October, have been cited by analysts as the main reasons for the sector’s appeal.

Part of the purchase could be attributed to the exit of Specified Undertaking of The Unit Trust of India (Suuti) from Axis Bank via a secondary sale for 3,839 crore, said one of them.

“Overall, banks are in favour as seen from the FII investment activity," said Siddhartha Khemka, head of research (retail) at Motilal Oswal Financial Services. “Within the overall banking space, PSU banks have been gaining traction as they are both under-owned and undervalued. Suuti’s exit from Axis Bank could have led to some buying, but that’s still not known."

Buying by FPIs drove the 12 constituent Bank Nifty index up 2.6% through 42,373 over the fortnight. Bank Nifty hit a lifetime high of 42,622.75 on 17 November.

Analysts predict that financial services will continue to turn in robust performance for the next couple of quarters.

“The outlook for financials is strong in the near to medium term as well," said Hemali Dhame, an analyst at Kotak Securities (private client group research).

“In the near-term, loan growth is likely to remain strong and margins on uptrend until it normalizes in the next financial year. Even then, they are likely to remain steady and healthy. Asset quality concerns are behind us. We don’t see a material impact on credit costs in the medium term. With a strong capital (likely lesser dilution), we expect healthy operating metrics for the banks and, consequently, other financial institutions. It is also clearly visible in the FPI investments of the current month, which is greater than any other sector."

FPIs have net sold shares worth $3.95 billion in the fiscal year so far, after selling $18.5 billion in FY22 and buying a record $37 billion in FY21.

In the September quarter, financials outperformed other companies. A dozen private banks from Motilal Oswal Financial Services’ universe of 223 companies posted a profit of 30,100 crore, exceeding expectations by 4%.

Similarly, six PSU banks beat expectations by 21.4%, reporting a profit of 22,600 crore.

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