FPIs dump $2.1 bn worth bank shares in Nov, pump $2.7 bn into FMCG stocks

Foreign portfolio investors (FPIs) dumped $2.1 billion worth of shares of banks and financial companies in November, triggering a 9 per cent slide in the Bank Nifty index.

On the other hand, they steered towards more defensive counters, pumping in over $2.7 billion into fast moving consumer goods (FMCG) and retail stocks, according to an analysis by Sriram Velayudhan, vice president – alternative research at IIFL-Institutional Equities.

Last month, the market saw their worst monthly decline since March 2020 as the new coronavirus variant and the US Federal Reserve’s hawkish turn rattled investors across the globe.

Oil and gas (FPI outflows of $634mn), metals and mining ($410 million) and IT ($366 million) were the other sectors that saw maximum FPI selling. Besides FMCG, realty (inflows of $524 million) was the only sector to see meaningful inflows. 

The inflows into the realty sector too could have been subdued if not for Godrej Properties’ inclusion in the MSCI index.

Banks and financials have the highest sectoral weighting in FPI portfolios.  However, after last month’s selling, FPI allocation to banks and financials has dropped to 30.5 per cent—the lowest since September 2020. In February, the allocations stood at 34.8 per cent.

This pruning has led to a sharp underperformance in banking shares this year. On a year-to-date basis, the Bank Nifty has risen 14.3 per cent and the Nifty Financial Services index has gained 15.7 per cent. In comparison, the benchmark Nifty index has gained 21 per cent.

“In our view, the underperformance of banks reflects the global narrative of incumbent banks being ill-prepared in the emerging environment versus fintech and big tech firms. The market has extrapolated the success of fintechs in payment to lending too. There are two issues with this narrative in the Indian context: Standalone payment business is not very remunerative; and the lending space is already quite crowded. Fintechs have no real advantage in lending,” said Kotak Institutional Equities in a note on December 3.

The brokerage is positive on the space as it sees tailwinds.

“Incremental news will likely be positive with a more favourable macroeconomic environment; higher interest rates are positive for yields and spreads in general, and likely pickup in credit offtake on recovery in the economy in general and automobile (CV, PV) and housing demand in particular; and likely stable-to-lower provisions as economic conditions improve,” the note added.

Sectors where FPI allocations were higher in November than at the start of the year include FMCG (12.2 per cent in January versus 13.4 per cent now), power (2.2 per cent versus 3.6 per cent), and real estate (0.9 per cent and 1.4 per cent), as per IIFL.