Foreigners sold shares worth ₹34,022 crore across 16 sectors in the first half of August, according to data from NSDL, after pulling out ₹34,974 in the second half of July and ₹10,541 in the first half of last month.
“Muted earnings, strong pipeline in the primary markets and the tussle on the tariff front have kept foreign investors wary about India,” said Sriram Velayudhan, senior vice president, IIFL Capital.
The Sensex and Nifty have gained up to 0.8% in August so far after falling 2.9% in July.
Financial services witnessed the highest foreign selling in the August 1-15 period as investors dumped shares worth ₹13,471 crore.
Agencies“Banks are expected to witness muted credit growth, and the Q2 growth in turn is also likely to be flattish,” said Pranay Aggarwal, director and CEO, Stoxkart. “The uncertainty on India-US relations has also led to overall outflows.”Between March and June, foreign investors bought bank shares worth ₹45,657 crore. However, sentiment soured in July, when they offloaded over ₹5,000 crore.”There has been some profit booking in financial services after the recent outperformance, reflecting expectations of near-term margin compression and a cooling credit growth cycle,” said Bhavik Joshi, business head, INVasset PMS. “Recent quarterly trends have shown pressure on bank margins, leading investors to turn more cautious on the sector.” The IT sector continued to see foreign selling. This amounted to ₹6,380 crore in the first half of the month as the sector underperformed the market due to weak earnings amid macroeconomic uncertainty.”Technology spending remains weak, which is likely to weigh on Indian IT companies’ margins,” Joshi said. “While the prospect of US rate cuts offered a temporary lift to IT stocks, the sustainability of that momentum is limited, as global clients remain conservative on discretionary tech outlays.
These stocks have, however, seen some respite of late due to the US Federal Reserve’s guidance for an interest rate cut in September.
OTHER SECTORS
Foreign investors offloaded shares worth Rs 4,091 crore in the oil and gas sector, after sales of over Rs 3,000 crore in July. The oil and gas sector has remained under pressure amid geopolitical and trade uncertainties, said analysts.
“Recent signals from the US on India’s continued crude imports from Russia have created an overhang, with markets now watching closely for clarity toward the end of August,” said Joshi.
Global investors divested shares worth over Rs 2,000 crore in the power and healthcare sector in the first half of the month. Realty, fast moving consumer goods (FMCG) and consumer durables saw foreign outflows worth over Rs 1,000 crore.
WHAT DID FOREIGNERS BUY
Overseas investors bought shares worth Rs 13,046 crore in the first 15 days of August across seven sectors. Telecommunications continued to be a favourite, as they invested Rs 7,446 crore in the first half of August after receiving inflows worth Rs 28,158 crore between January and July.
FOREIGN FUND OUTLOOK
The outlook for emerging markets has improved with the Fed signalling a rate cut but India may not be a big beneficiary of any risk-on mood.
“The US Federal Reserve has guided for an interest cut which historically translated to riskon sentiment favourable for emerging markets but other countries are trading at attractive valuations compared to India,” said Velayudhan.
An interest rate cut in the United States could weaken the dollar, resulting in investors looking at options outside dollar-based assets. Some money managers see the scope of foreigners returning to India given that they have been underweight on the country’s equities. Nonetheless, the purchases could be in select sectors.
Joshi said, “Following the accelerated foreign sell-off through July and August, we anticipate a potential turnaround in flows if the dollar continues to soften and global liquidity improves.”
“Importantly, these inflows likely to be directed toward non-traditional sectors such as capital goods and select metals, where earnings visibility and operating leverage are strengthening,” he added
