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The financial services sector witnessed outflows to the tune of Rs 23,000 crore by foreign portfolio investors (FPIs) between July 16 and August 15, according to National Securities Depository Ltd (NSDL) data.
While in the first fortnight of August (from August 1-15), FPIs pulled out Rs 14,790 crore of shares, they offloaded equities worth Rs 8,119 crore worth of stocks between July 16 to 31 from the financial services sector, the data showed. Analysts said that selling by FPIs in the financial sector was mainly on concerns over slower deposit growth compared to loan growth, which can affect profitability of banks.
Overall, FPIs dumped Rs 18,824 crore of shares, on a net basis, between August 1 and 15, compared to purchase of Rs 11,645 crore worth of equities across sectors in the previous fortnight ended July 31. After the financial services sector, FPIs sold the highest amount of shares in the metals and mining sector at Rs 2,668 crore during the first fortnight of August.
Automobile and auto components, capital goods, construction materials, oil, gas and consumable fuels and services were the other sectors where FPIs pulled out money in the period.
“Financial services companies are under pressure because credit growth in the economy is higher than the deposit growth. Money is moving from bank deposits to mutual funds and so banks are struggling to garner deposits. When deposit growth trails credit growth, banks’ net interest margin (NIM) falls, which impacts their profitability. This is a concern,” said V K Vijayakumar, chief investment strategist, Geojit Financial Services.
“Selling by FPIs was witnessed in the first fortnight of August in many other sectors also, including metals on fears that economic slowdown in US and China will keep metal prices soft,” he added.
In the fortnight ended August 9, bank deposits increased by 11 per cent (year-on-year) compared to a 14 per cent growth in advances, the latest data from the Reserve Bank of India (RBI) showed. The government and the RBI has expressed concerns over slower growth in bank deposits and have urged lenders to mobilse deposits through innovative products.
Analysts said that the largest chunk of FPIs’ holding in the domestic market comprises financial services stocks and when they go on a selling spree, maximum impact is seen in the sector.
During the fortnight ended August 15, FPIs purchased shares in sectors such as consumer services (Rs 2,196 crore), fast-moving consumer goods (Rs 1,785 crore), healthcare (Rs 3,462 crore) and power (Rs 1,169 crore).
Separately, the NSDL data showed that foreign investors offloaded shares worth Rs 16,305 crore, or $1,943 million, between August 1 and 23.
FPIs have been sticking to the strategy of selling shares in the stock market and buying in the primary market, that is, through initial public offerings (IPO). From August 1 to 23rd, overseas investors sold equity for Rs 28,671 through stock exchanges while purchasing shares worth Rs 12,367 in the primary market.
“The logic behind this divergent trend of selling through the exchange and buying through the primary market is the difference in valuations i.e., lower valuations in the primary market and high valuations in the secondary market,” said Vijayakumar. Selling by FPIs in August (till 23rd) comes after two consecutive months of buying domestic shares. Overseas investors purchased equities worth Rs 26,565 crore in June and Rs 32,365 crore in July.
So far in the calendar year 2024, FPIs have net bought Rs 19,261 crore of domestic shares.
The government and the Reserve Bank of India (RBI) has been expressing concerns over slower growth in bank deposits and have prodded lenders to mobilse deposits through innovative products. According to the latest RBI data, during the fortnight ended August 9, bank deposits increased by 11 per cent (year-on-year) compared to a 14 per cent growth in adva
