Foreign selling in Indian stocks persists in Feb, but financials see relief

Foreign investors continued to exit Indian equities in February, but the pace of selling in heavyweight financial stocks slowed sharply from January's heavy outflows, data on Thursday showed, even as concerns over lagging economic growth persist.

Foreign portfolio investors (FPI) sold financials worth 69.91 billion rupees ($803.2 million), the most among major sectors, per data from the National Securities Depository. However, this is a sharp moderation from January when financials saw $3 billion in outflows.

Foreign investors also offloaded $800 million worth of consumer stocks, while the auto and capital goods sectors saw outflows of $450 million and $500 million, respectively.

FPIs sold about $4 billion of Indian shares last month, down from $9 billion in January - the second-highest monthly foreign sales on record.

The consumer and auto indexes fell 10.6 per cent and 10.4 per cent in February, while financials lost 0.8 per cent.

So far this year, FPIs have offloaded domestic stocks worth $15.34 billion, with total sales amounting to $27 billion since end-September when equity markets hit record highs.

A combination of slowing domestic corporate earnings, worries over moderating economic growth, the likelihood of higher-for-longer US interest rates - due to the potential inflationary impact of tariffs - have fuelled a retreat in foreign money.

The Nifty 50 has plunged 15 per cent from its record high, including a 6 per cent drop in February, marking its longest monthly losing streak since 1996.

"Flows are difficult to call, but the emerging markets (EM) funds' India positioning is the biggest underweight in 20 years, with most investors uncertain on when to add to India exposure," said Surendra Goyal, head of Indian research, and Vijit Jain, analyst at Citi Research.

"Any evidence of stability or acceleration in earnings will likely be the catalysts (to reverse FPI outflows)," they said.

While the central bank's liquidity easing, along with cheaper corporate valuations could trigger a near-term bounce in the markets, global uncertainty remains a risk, analysts at Jefferies said.