Why are foreign investors flocking to BFSI stocks in May?

Synopsis

Foreign Portfolio Investors (FPIs) significantly increased their investments in Indian markets during the first half of May, with banking and financial services (BFSI) stocks attracting the highest inflows at ₹4,728 crore. Capital goods and oil & gas sectors also saw substantial investments, while FMCG experienced the most significant selling pressure. Experts anticipate further FII inflows driven by global de-dollarization.

Mumbai: Foreign investors pumped ₹4,728 crore into banking and financial services shares in the first half of May - the highest flows across sectors. The investments account for almost 40% of their net flows of ₹12,800 crore across all sectors during the period.

In April, foreigners had bought BFSI shares worth ₹18,409 crore after being sellers in January-March and 2024.

"BFSI comprises almost 30% of all major indices and has also witnessed the highest earnings growth given the slowdown in the other sectors," said Manish Bhandari, CEO & portfolio manager, Vallum Capital. "Further inflows are likely in the segment."

Capital goods, oil and gas, services and automobiles, along with the Information Technology (IT) and metals sector, were among the other sectors that attracted flows in the May 1-15 period.

These investors pumped in ₹2,233 crore and ₹2,130 crore in capital goods and oil & gas sectors, respectively, in the first 15 days of May.

Agencies

"Capital goods and oil and gas sectors have both corrected significantly and the latter has seen the highest foreign outflows during the sell off," said Pankaj Pandey, head of retail research, ICICI Direct.

"This trend is reversing in both the sectors and Reliance has started to perform, which is positive for oil and gas sector as a whole."

Foreign investors purchased shares worth over ₹1,000 crore in services, automobiles, consumer services and telecommunication sectors.

Global investors offloaded shares worth ₹4,142 crore across nine sectors in the first 15 days of the month. The selling was the highest in the fast-moving consumer goods (FMCG) sector, where foreign investors sold divested ₹1,057 crore after buying ₹2,917 crore in April.

Pandey said overseas investors continued to remain negative on the FMCG sector as it is expected to have low single-digit growth rate and trade at high valuations.

"FII inflows are expected to accelerate, led by the increased de-dollarisation across the world," said Bhandari. "Both India and China are likely to see incremental buying."

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