The Nifty IT index drops 6 per cent in May. The main reason behind the fall was that FPIs sold stocks worth over 16,000 crore from the sector amid a volatile rupee, according to data released by NSDL.
In 2021, the Nifty IT index increased by 59 per cent, owing to substantial earnings growth for IT companies as a result of digital transformation transactions in the United States and Europe.
Foreign investors have been bearish on Indian markets for a multitude of reasons, including inflation and a weakening rupee. The IT stocks are among those names that have the largest concentration of foreign investor holdings; thus, they were battered blue in May, Economic Times reported.
Mindtree and L&T Tech Services were among the biggest losers, down 14 per cent each. Both L&T group companies have decided to merge together to become one entity. Another stock from the same group, Larsen & Toubro Infotech, was another big loser, down 12 per cent.
Meanwhile, the US market accounts for 40-78 per cent of Indian IT firms' revenues, with the big five – Tata Consultancy Services, Infosys, Wipro, HCL Technologies, and Tech Mahindra – accounting for more than half.
The IT sector was followed by the financial services sector in terms of FPI selling in May. They sold shares worth ₹12,000 crore during the month. Bank and financial stocks have underperformed for many months now. They have the biggest weight in the benchmark indices, which means selling in them impacts the entire market.
Oil, gas and consumable fuels ( ₹3,568 crore), metals and mining ( ₹2,752 crore), consumer durables ( ₹2,705 crore), consumer services ( ₹1,722 crore), construction materials ( ₹1,450 crore), automobile and auto components ( ₹1,398 crore) and construction ( ₹1,175 crore) were other sectors that saw big FPI selling.
Overall, FPIs sold a net ₹39,995 crore worth of equities in May, NSDL data shows.
There were some sectors that saw buying as far as FPIs are concerned. They bought ₹2656 crore worth of services sector stocks, followed by ₹2307 crore worth of power sector stocks. Chemicals, capital goods, and forest materials also saw some buying.
Analysts say rising prices and the challenge they pose to policy makers continue to be major headwinds for risk assets globally. Higher rates impact equity valuations adversely. Persistent higher inflation and rates may also adversely impact demand, margins, and hence corporate earnings.