Flows from FPIs favour banks, financials and FMCGs in CY20, shows data

Flows from foreign portfolio investors (FPIs) saw sharp a reversal in the second half of last year, as the surge in global liquidity made its way into emerging markets (EMs), such as India.

FPI flows from April last year show they have been betting on a revival in consumer demand to drive economic growth, revealed an analysis by Edelweiss Securities. Between April and December, banks and financial services received $8.9 billion, of which $7.5 billion came in the last three months. 

Fast-moving consumer goods (FMCG) garnered $5.14 billion, as sooner-than-anticipated business revival and improving sales figures helped Asian Paints, Titan, Dabur, and Tata Consumer stocks to post lifetime highs. 

The other sectors which saw sizeable FPI flows in this period were oil and gas ($2.3 billion), pharmaceutical ($1.7 billion), capital goods ($1.6 billion), and automobile ($1.5 billion). “Banks and financials are not just a consumer story. It also represents the best proxy for the India story. Any bounce in demand or capital investment revival has to be led by the banking and financial sector,” said a research note by Edelweiss Securities.

The sector that saw the most FPI selling from April to December was telecommunication ($1.13 billion). “The sector has been under pressure due to cut-throat competition and legal cases (adjusted gross revenue case). While Bha­rti Airtel and Indus Towers have recovered from lows, Vodafone Idea has been heavily battered,” the note observed.

In calendar year 2020 (CY20), banking & financials and FMCG saw the most inflows, while the most outflows were seen in telecom and power (see chart: Sectoral FPI flows).

Over the past one year, sectors that have seen the maximum increase in FPI allocation are IT, pharma, FMCG and capital goods (see chart: Change in ownership). FPI ownership in banking & financials has dipped by about 355 bps in past one year, but flows are quite encouraging in past three months.

A weak dollar, global liquidity and strong commodity prices augur well for sustained positive overseas flows into emerging markets such as India in the coming months, according to market observers.