FIIs Turn Bullish on Financial Services Segment; Invest Rs 8,100 Crore in Late June

Historical Context: Foreign Institutional Investors (FIIs) have played a significant role in the Indian stock market since the early 1990s when India liberalized its economy. Their investment patterns often reflect global economic trends and domestic market conditions. The financial services sector, particularly banking, has been a cornerstone of India’s economic growth, with reforms and technological advancements driving its evolution.

Article: Foreign Institutional Investors (FIIs) have shown a strong bullish sentiment towards the financial services sector, purchasing shares worth over Rs 8,100 crore in the second half of June. This follows an investment of approximately Rs 1,000 crore in the same segment during the first half of the month.

This shift is notable as FIIs were net sellers of financial services stocks in May, with total sales amounting to Rs 8,583 crore. Market analysts attribute this turnaround to several upgrades by broking firms and a robust rally in the financial services sector, particularly among private-sector banks.

Bernstein analysts have recently commended Indian banks for their strong credit growth, asset quality, and margins, highlighting both large and niche lenders. Similarly, CLSA has pointed out the much stronger balance sheets of Indian banks compared to five or ten years ago. Bank of America Securities has given ‘buy’ ratings to HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank, citing strong earnings and valuations.

Analysts predict that these banks will outperform in Q1FY25, driven by robust margins and credit flow. Macquarie projects healthy Return on Assets (ROAs) and Return on Equity (ROEs), noting resilience to Expected Credit Loss (ECL) regulations and stable net interest margins (NIMs). Nomura has highlighted challenges in deposit growth but expects stabilization through increased government credit or RBI forex purchases.

CLSA has emphasized that Indian banks’ balance sheets are the strongest they have been in a decade, with profits quadrupling over the past ten years. Loan growth has recently surged to 15%, and deposit growth is expected to follow suit.

Private banks, which had previously lagged, are now expected to offer better returns due to a strong business outlook and low valuations. However, a potential repo rate cut could impact NIMs in the short term.

In addition to financial stocks, FIIs continued to invest in the consumer and capital goods sectors in late June. According to NSDL data, FIIs bought Rs 6,200 crore in telecom, Rs 3,100 crore in consumer services, Rs 2,900 crore in capital goods, Rs 2,886 crore in healthcare, Rs 2,050 crore in auto, Rs 1,578 crore in IT, Rs 1,475 crore in construction, and over Rs 1,000 crore each in oil & gas, consumer durables, and chemicals stocks.

Conversely, foreign investors remained net sellers in the power, metals, and FMCG sectors. In June, they sold around Rs 2,439 crore in power, Rs 1,128 crore in metals, and Rs 677 crore in FMCG. In May, FIIs had sold over Rs 3,000 crore in power, Rs 953 crore in metals, and Rs 4,173 crore in FMCG.

Summary:

• FIIs invested Rs 8,100 crore in financial services in late June.
• This follows Rs 1,000 crore investment in early June.
• FIIs were net sellers in May, selling Rs 8,583 crore in financial services.
• Market rally and upgrades by broking firms drove the turnaround.
• Analysts praise Indian banks for strong credit growth, asset quality, and margins.
• Private banks expected to offer better returns due to strong outlook and low valuations.
• FIIs also invested in telecom, consumer services, capital goods, healthcare, auto, IT, construction, oil & gas, consumer durables, and chemicals.
• FIIs remained net sellers in power, metals, and FMCG sectors.