FPIs pull out Rs 61,006 crore from financial services companies in ‘sell India, buy China’ shift

The recent sell-off in shares of financial services companies is driven mainly by the “sell India, buy China” strategy, adopted by FPIs after Chinese authorities announced stimulus measures to boost the economy. Besides, concerns over the weak performance of certain lenders, especially private sector banks and non-banking financial companies (NBFC), have also triggered FPI outflows from the sector, analysts said.

At present, the total AUM of FPIs in India is $980 billion. Of this, the financial services sector makes up the largest chunk (28 per cent), followed by the information and technology sector.

“In terms of valuation, the Chinese market is much cheaper whereas the Indian market, even after the current 7 per cent correction, remains expensive. It is very rational for FPIs to sell in ‘expensive India’ and take the money to the Chinese market where valuations are very attractive,” said V K Vijayakumar, chief investment strategist, Geojit Financial Services.

In the last one month, Indian benchmark indices, Sensex and Nifty, have declined by around 7 per cent. This fall in both indices comes after a 36 per cent gain witnessed in the last 16 months.
In the first 15 days of the month, FPIs have sold Rs 23,274 crore of financial services companies’ shares. Between October 1 and October 30, FPIs have pulled out Rs 91,819 crore ($10.934 billion) worth of Indian equities.

Such a large amount of selling in a short period can only be carried out by offloading shares that are liquid.

“When FPIs have to sell shares worth Rs 4,000-5,000 crore or more in a single month, they can execute it only in liquid stocks such as HDFC Bank, ICICI Bank, Shriram Finance and Bajaj Finance,” Vijayakumar said.

Foreign investors have likely invested in these liquid stocks a few years back. Since then, the share prices of these companies have appreciated, and so FPIs are now choosing to book profits. The gains are then invested in Chinese stocks, analysts said.

“FPIs are not looking at the future prospects of these companies right now. They are looking at an opportunity to ‘sell in India and buy in cheaper markets’, where they will be getting higher appreciation in the short-run,” said an analyst.

According to Gaurav Dua, SVP, head – Capital Market Strategy at Sharekhan, banking & financial services have a large weight in benchmark indices and consequently tend to see relatively larger outflows during risk aversion phases in the Indian markets.

“Moreover, the macro environment has also not been too favourable lately with pressure on the asset quality side in the unsecured loan book of NBFCs and some of the private banks,” he said.

Comparatively, the non-lending financial services companies in wealth management, asset management and broking services have seen buying interest from domestic and foreign institutions in 2024, Dua said.

After the financial services sector, the second highest amount of outflows was seen in the oil, gas & consumable fuels sector at Rs 23,095 crore from January 1 to October 15, 2024. In the same period of 2023, the sector witnessed outflows to the tune of Rs 21,023 crore. Other major sectors that saw FPIs pulling out money in the current year, were construction (Rs 12,025 crore), fast-moving consumer goods (Rs 11,233 crore) and power (Rs 6,317 crore). All three sectors saw inflows from FPIs from January 1 to October 15, 2023, as per the NSDL data.

Among the sectors that witnessed FPI inflows so far in the current year included telecommunication (Rs 29,538 crore), capital goods (Rs 28,610 crore), consumer services (Rs 21,901 crore), healthcare (Rs 21,788 crore) and realty (Rs 13,868 crore).