FPI: FPIs switch to ‘defensives’ with Covid 2.0 taking a toll

Mumbai: Discretion is the better part of valour, Shakespeare said about five centuries ago. For overseas investors, it’s still the best strategy to make money in covid-crippled India.

As an unprecedented viral wave shuts the country down for the second consecutive summer, discretionary expenditure has visibly ebbed — and so has FPI enthusiasm for business-as-usual stocks that rely on normal mobility. Instead, this block that owns more than a fifth of India’s market value is now buying up the traditional ‘defensives’ — products one can’t live without.

So, consumer staples and IT are featuring more prominently on FII buy lists while BFSI and autos get the short shrift. Overseas investors bought $376 million (Rs 2,800 crore) and $201 million (Rs 1,517 crore) worth of consumer staples and IT stocks, respectively, in April.

FPI

By contrast, overseas ownership weightage in BFSI is at a six-month low after foreign investors pulled out $1.12 billion from the sector. FPIs were net sellers in April on an overall basis for the first time in six months, offloading $1.3 billion (Rs 9,869 crore).

“Their overall AUM shrunk and since they are most overweight on banking and finance, the sector saw the biggest pullout,” said Abhilash Pagaria, senior manager at Edelweiss Alternative Research.

The Bank Nifty fell about 3 per cent in the month, while the Nifty barely retreated.

Sriram Velayudhan, vice-president alternative research, , said BFSI retreated because it received the biggest flows in the current rally. “FPIs are playing it safe as there remains uncertainty around the earnings visibility of select financials because of the second covid wave,” said Sriram.

Meanwhile, the share of the defensive sectors in the equity AUM by FPIs reached 30 per cent at the end of April, a gain of 169 basis points from mid-February. Total FPI equity AUM declined 5 per cent to $547 billion (Rs 40.8 lakh crore) from the recent peak in February, while the AUM of the defensive sectors rose 2.3 per cent to $90.6 billion (Rs 6.75 lakh crore) in April.

The Nifty FMCG index and the Nifty Consumption index have outperformed the benchmark Nifty 50 by 4.3 per cent and 1.5 per cent, respectively, over the past month.

Last April, FPIs also went big on the defensives. They bought $385 million (Rs 2,868 crore) worth of consumer staple stocks while being net sellers of $912 million (Rs 6,794 crore) on an overall basis.

Investments of FPIs in the IT sector increased significantly in the second fortnight of April following upbeat results by top five software exporters and cumulative deal wins of $11.9 billion. FPIs invested $281 million (Rs 2,094 crore) in the IT sector stocks during the period, the highest among all the sectors.

The banking and financial sector was the biggest casualty of the selling by foreign investors in April in the Indian equities after six straight months of buying.

The oil and gas sector saw FPI outflow of $466 million and metals and mining sector saw the third biggest outflow at $242 million. FPI weightage in the oil and gas sector is 11.3 per cent and 2.4 per cent in metals and mining, an Edelweiss report showed.

Overseas investors pulled out $1.29 billion from Indian equities in April. “FPI flows in May will again depend upon the countrywide restrictions, business activities, the result season and management commentaries for the coming months,” said Pagaria.

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