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Sept quarter: DIIs, FPIs train eyes on banking, finance stocks amid economic greenshoots

Market experts say strong FPI inflows into bank and finance companies is in line with the fact that they are relatively undervalued.

Written by Sandeep Singh | New Delhi | November 10, 2020 2:10:45 am
According to data sourced from primeinfobase.com, of the 10 companies that witnessed the highest buying by FPIs in the quarter ended September 2020, there were five banks and a housing finance company.

As the economy started witnessing signs of recovery in quarter ended September 30, 2020, both foreign portfolio investors (FPIs) and domestic institutional investors (DIIs) trained their focus on the banking and finance sector and invested heavily in banks and financial institutions.

According to data sourced from primeinfobase.com, of the 10 companies that witnessed the highest buying by FPIs in the quarter ended September 2020, there were five banks and a housing finance company. Similarly, of the 10 companies that witnessed highest buying by DIIs in during the quarter, three were banks and two finance companies.

ICICI Bank was the biggest gainer as data shows that FPIs invested a net of Rs 12,728 crore in ICICI Bank. They also invested in Axis Bank (Rs 8,578 crore), Yes Bank (Rs 7,012 crore). The other three banks/finance company in the list of top 10 included HDFC Ltd, Bandhan Bank and HDFC Bank. As per primeinfobase.com, the net investment in the companies have been calculated by multiplying the difference between shareholding of June and September with the average closing price for the quarter. So, of the net investment of Rs 63,810 crore in these top 10 companies, the six bank/ finance firms garnered over Rs 42,000 crore. The other four companies that made the top 10 include Eicher Motors, Reliance Industries, Asian Paints and Infosys and they attracted an aggregate investment of over Rs 21,600 crore.

DIIs also followed a similar trend and five banks/finance companies occupied the list of 10 companies that witnessed highest buying by DIIs during the quarter. Data shows DIIs invested a net of Rs 9,782 crore in Yes Bank and Rs 2,377 crore in HDFC Ltd. They also invested in Bandhan Bank (Rs 2053 crore), ICICI Bank (Rs 1,465 crore) and Mahindra & Mahindra Financial Services (Rs 1,251 crore).

Pranav Haldea, MD, Prime Database said, “Whenever there is an economic revival, there are expectations of credit offtake and financial sector benefits from that revival. Given what the economy has undergone over the last 7-8 months, there is now expectation of credit offtake going forward and banking and finance will benefit and that has resulted into investments by FPIs and DIIs.” During the quarter, FPIs invested gross of Rs 4,13,836 crore and a net of Rs 46,860 crore into domestic equities. Data shows while they raised their holding in 349 NSE-listed companies during the quarter, they reduced holding in 535 companies.

While FPI ownership of Indian equities declined from 22.46 per cent in December 2019 to 21.17 per cent in March 2020 and 21.05 per cent in June 2020, following the sharp fall in markets due to Covid, the September quarter saw a rise in their holding to 21.52 per cent. Market experts say strong FPI inflows into bank and finance companies is in line with the fact that they are relatively undervalued and, thus, provide opportunity for investment.

In January, the price-to-earning ratio for Sensex was 25.6 and, in October, it is around 28.09, which means the Sensex is already trading in a more expensive zone as compared to that in January. In contrast, while the PE ratio of Bank index at BSE stood at 32 in January 2020, it currently is hovering around 20.37. This means that the PE ratio of bank index was much lower than it was in January.

Fund managers feel while there are some concerns on account of NPAs, the sector is undervalued and throws opportunity for investors and several fund houses are advising their investors to invest in sectoral funds focussing on banks.

“At this point in time, we believe banking & infrastructure space is under- valued and hence, investors with a 3-5 year horizon should consider SIPs in such funds,” said Sankaran Naren, ED and CIO at ICICI Prudential AMC.

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