FPI Exodus from Financial Stocks Hits Indian Market as Investors Pivot to Defensives in August 2024

Foreign portfolio investors (FPIs) have been net sellers in the Indian stock market during the first half of August 2024, favoring defensive sector stocks over financial stocks. From August 1 to August 15, FPIs sold Indian equities worth ₹18,824 crore, mainly pulling out from sectors like financial services, metals and mining, construction materials, and automobiles.

This follows a strong month in July when FPIs invested ₹32,365 crore (about $3.87 billion) in Indian stocks, marking the second-highest monthly inflows of the year.

Significant Sell-Off in Financial Services

The financial services sector was hit hardest, with FPIs selling ₹14,790 crore worth of stocks in the first half of August, continuing from a ₹7,648 crore sell-off in July, according to data from the National Securities Depository Limited (NSDL).

Metals and mining also saw significant outflows, with FPIs withdrawing ₹2,668 crore after July’s inflows of ₹7,310 crore.

Other Sectors Affected

The construction materials sector experienced FPI outflows of ₹2,036 crore, while the automobile sector and capital goods stocks saw FPIs selling ₹1,628 crore and ₹1,089 crore, respectively, between August 1 and August 15.

Reasons for the Sell-Off

According to Vipul Bhowar, Director of Listed Investments at Waterfield Advisors, the FPI outflows on August 24 were driven by both global and domestic factors. Globally, concerns like the unwinding of the Yen carry trade, fears of a global recession, slowing economic growth, and ongoing geopolitical tensions contributed to market volatility and risk aversion. Domestically, after being net buyers in June and July, some FPIs might have opted to book profits after a strong market rally in previous quarters.

Bhowar added that mixed quarterly earnings and relatively high valuations have made Indian stocks less attractive.

FPI Buying in Defensive Sectors

On the flip side, FPIs continued to invest in defensive sectors like healthcare and Fast-Moving Consumer Goods (FMCG). The healthcare sector attracted the highest FPI inflows, totaling ₹3,462 crore, followed by the consumer services sector with ₹2,196 crore, and the FMCG sector with ₹1,785 crore in investments. Additionally, FPIs bought ₹1,169 crore worth of stocks in the power sector, rebounding from a significant sell-off of ₹3,796 crore in July.

Market Outlook

Vinod Karki of ICICI Securities noted that despite high valuations, India’s strong economic performance, including GDP growth and solid sector growth, continues to attract FPI investments. However, he warned that expensive valuations and rising global market risks might keep FPI flows volatile in the short term.

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, observed a trend where FPIs have been selling through exchanges but continuing to invest in the primary market. He attributed this to valuation differences, with FPIs preferring to buy in the primary market where valuations are lower, and selling in the secondary market where valuations are high. He expects this trend to persist as India remains one of the most expensive markets globally.