FPIs pumped money into capital goods, auto sectors before Budget

Foreign portfolio investors (FPIs) were seen pumping money into sectors, such as capital goods ($580 million), auto ($477 million) and telecom ($355 million) in January, ahead of the Union Budget.

Overseas investors increased exposure to the capital goods space at the right time as the sector got a major boost from the capex-driven Union Budget. The government has proposed to boost capex spends by 26 per cent in FY22 over FY21’s Revised Estimate. 

“The principal theme of the Budget 2021-22 was definitely a capex and infra-led Budget, which is positive for sectors, such as cement and heavy industries,” said Jimeet Modi, CEO, Samco Group.

Banking and financial (-$345 million), and real estate (-$37 million) were the only two sectors that saw FPI outflows last month. “The banking sector index declined 2.2 per cent in January. The fall was due to some profit-taking by FPIs, after a 40 per cent rally in the preceding three months. It was the first time foreign investors withdrew money from the sector since September. The outflow is minuscule when compared to an inflow of $ 7.5 billion between October and December,” said Abhilash Pagaria, analysts at Edelweiss.

The banking and financial pack accounts for the bulk of FPI investments. The sector has a weighting of 33.8 per cent (it was 34.9 per cent in December) in the equity portfolio of foreign investors. The second-highest weighting is of the IT sector, at 14.2 per cent.

The banking sector will likely see a reversal in FPI outflows in February. The BSE Bankex shot up 16 per cent in the past six trading sessions. FPIs have invested about Rs 15,000 crore, so far, this month. Market observers said the bulk of the flows may have gone into the financial space.

Pagaria said besides investing in their favoured private banks, FPIs have started to look at public sector banks (PSBs). The Nifty PSB jumped 25 per cent last week, buoyed by State Bank of India (SBI’s) encouraging results and optimism created by the government’s decision to privatise two PSBs, besides IDBI Bank.

While the oil & gas and FMCG sectors saw incremental foreign flows, but FPI weighting in these two sectors dropped 40 basis points and 30 bps, respectively, on a month-on-month basis.

Net FPI flows in January stood at $2.6 billion, lower than the preceding two months, when they had invested more than $8 billion in each of the two months.