As a result of increase in credit demand and a sharp turnaround in earnings of public sector banks, foreign investors raise their bets on Indian financial services stocks as they reversed their outlook on equities in the last one month, reported Economic Times.
Foreign portfolio investors (FPIs) invested close to 39 percent of their total inflows of $3.5 billion in the fortnight ended November 15 in stocks from the financial sector, data from National Securities Depository Ltd (NSDL) show.
The amount of FPI inflows in financial services during the fortnight is the highest in the sector since February 2021. As a result, the share of financial services in FPIs’ equity portfolio reached 32.28 percent as of November 15, 2022 — the highest in 18 months. Financial services is the highest weighted sector for the FPIs.
FPIs have a weightage of 37% in the Nifty 50 index and 24.8% in the MSCI India index. In the pre-Covid period, FPIs’ share was in excess of 38%.
So, why are FPIs increasing their exposure to the financial services sector?
First, credit growth of banks was 16% at the start of November, a multi-quarter high level, and aggregate bank credit reached 129 trillion. This is an indication of economic expansion in the next few months.
Secondly, earnings at Indian banks in the second quarter of FY23 were the strongest in many quarters. Banks reported earnings growth of 43% YoY for the quarter ended September, driven by 57% growth of PSU banks.
The Nifty Bank index has outperformed the Nifty 50 by 14% since the beginning of the year. Weightage of the financial services in the Foreign portfolio investors’ equity portfolio rose 142 basis points in the last six months — the highest among all sectors.
FPIs’ total equity portfolio was valued at $602 billion at the end of November 15.