FPIs infuse over ₹11,700 crore into IT sector in July, Banks face significant outflows

Foreign Portfolio Investors (FPIs) infused a total of ₹32,365 crore, or $3.87 billion, into Indian equities in July, marking the second-highest monthly inflows in 2024. The highest FPI inflows this year were recorded in March at ₹35,098 crore, while June saw inflows amounting to ₹26,565 crore.

Overseas inflows in the Indian stock market last month continued the recovery from previous withdrawals in April and May, which were attributed to prevailing uncertainties.

The increased FPI buying led a decent rally in the Indian stock market last month, with the NSE Nifty 50 rallying 4% and the BSE Sensex gaining 3.43% in July.

“The resurgence in FPI inflow can be attributed to a stable political environment, ongoing economic reforms, and appealing market valuations within India. On the contrary, in the United States, a potential rate reduction by the US Federal Reserve may incentivise FPIs to amplify their investments in India as they seek higher returns. However, concerns surrounding a looming recession or stagnant job growth in the US could prompt FPIs to adopt a more cautious approach, potentially resulting in investment flow volatility,” said Vipul Bhowar, Director Listed Investments, Waterfield Advisors.

He believes FPIs may opt to prioritise sectors that stand to benefit from domestic reforms and growth, such as technology and infrastructure, while approaching sectors vulnerable to global economic downturns with prudence.

According to data from the National Securities Depository (NSDL), overseas investors bought IT stocks the most in July, with inflows into the sector amounting to ₹11,763 crore ($1.40 billion). This represents the highest FPI inflow in the IT sector since the implementation of a new sectoral classification in 2022.

Following the IT sector, the Metals and Mining sector witnessed FPI inflows worth ₹7,310 crore, and the Automobile sector saw inflows of ₹6,148 crore. The Healthcare and Capital Goods sectors recorded inflows of ₹5,054 crore and ₹4,927 crore, respectively, according to NSDL data.

Capital goods has now seen inflows for eighteen straight months, while the Telecommunication sector saw inflows for the fifth successive month at ₹3,138 crore.

FPI Outflows

On the contrary, FPIs sold Financial Services stocks the most last month, with heavy selling concentrated in the second fortnight of July. FPI outflows from the Financial Services sector amounted to ₹7,648 crore, followed by the Power sector at ₹3,796 crore.

Meanwhile, in the last 12 months, the Capital Goods sector has seen highest inflows, while Banking and Financial Services witnessed highest outflows.

The total Asset Under Custody (AUC) by FPIs increased to ₹74.59 lakh crore at the end of July as compared with ₹71.44 crore at the end of June.

“We have been seeing mixed activity by the FPIs in the recent past, with bouts of buying and selling, a trend which is likely to continue for some more time. Their activity will remain influenced by various factors, including the performance of the global equity markets, the movement of dollar index, incremental geopolitical events, and opportunities in the Indian markets considering slightly elevated valuation levels,” said Milind Muchhala, Executive Director, Julius Baer India.

Sector Allocation Trends

FPI allocation in the Automobile sector at 8.1% rose for the seventh consecutive month and is highest since August 2018, a report by IIFL Securities said.

FPI allocation in Oil & Gas at 8.53% fell for the fifth consecutive month, while the allocation in telecom sector at 3.71% increased for the fifth consecutive month.

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