IT stocks lose most amid $5.15-billion FPI selling in May, shows data

The information technology (IT) sector had to bear the maximum brunt of foreign portfolio investor (FPI) selling in May. Overseas investors dumped shares worth $5.15 billion last month, which included $2 billion worth of selling in IT shares, according to an analysis done by IIFL Securities.

After IT, banking & financial services and fast-moving consumer goods (FMCG) saw the biggest outflows — at $1.55 billion and $660 million — respectively. Oil and gas stocks saw selling worth $460 million.

Banking & financial services and technology sectors have been seeing heavy selling for some time now. These two are also the biggest sectors in terms of FPI allocations. In the last six months, the former saw selling worth $10.34 billion, while the latter saw selling worth $7.13 billion.

The IT sector has now seen FPI selling for nine straight months. FPI allocation in IT dipped to 12.7 per cent, against 15.4 per cent in December last year. The FPI allocation in IT now is, in fact, the second-lowest since June-2020, at 12 per cent.

Analysts termed the selling in IT stocks as a ripple effect of the fall in stock prices of US tech majors. However, they said there is no reason to panic about Indian IT stocks because of the weakness in their US counterparts and Nasdaq. "Business profiles of technology stocks in the US and India are quite different. Secondly, the domestic IT companies benefit from rupee depreciation while US technology stocks are the losers of a significant rise in the dollar exchange rate. Nasdaq now trades around 40 P/E on current trail in earnings, while in India, out of the top-5 IT companies, four trade in the range of 18 to 29 times, and the largest player trades at 33 times on FY2022 (financial year 2021-22) EPS (earnings per share) basis. Thus, there is a lot of comfort in the domestic IT stocks,” said G.Chokkalingam, founder, Equinomics.
 

On the positive side, logistics stocks saw inflows worth $340 million. This was largely on account of Delhivery’s Rs 5,235-crore initial public offering (IPO), the second-largest of the year after Life Insurance Corporation (LIC). The issue saw good participation from overseas investors, unlike LIC.

FPI allocation in the logistics sector — at 1.6 per cent —­ has reached its peak since September 2019 while FPI allocation in auto stocks saw a rise at 5.2 per cent in May against 4.7 per cent in April 2022. But this was on account of relatively lower outflows.

Power stocks saw buying worth $290 million in May. In the last three months, the power sector has continued to attract foreign investments worth $410 million. On the other hand, FPIs sold shares worth $350 million in metals in May after four months of successive buying.

FPI allocation to real estate, which had reached a high of 1.40 per cent in November 2021, now stands at 1.20 per cent. Cyclical stocks comprising capital goods, metals & mining, cement & infrastructure stocks which used to see FPI buying interest in the past, have seen their allocation dip to 8 per cent from 9.3 per cent in February this year.

FPIs have been on a selling spree as the Federal Reserve is set to tighten its monetary policy aggressively. Supply disruptions caused by the Russia-Ukraine war and lockdowns in China that threaten to keep prices of key commodities high have also dented sentiment.