MUMBAI: As foreign institutional investors (FIIs) continued to pile on Indian shares in February, most of the money was spent on buying banks and financial stocks. Improving business environment, as the economy emerges out of the pandemic-induced economic downturn, and favourable provisions in the Union budget made the sector attractive for the investors.
In February, FIIs invested $1.96 billion in banking and financial stocks, NSDL data analysed by Edelweiss Alternative Research showed. That represents 55% of the total FII inflows of $3.56 billion into Indian equities during the month.
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"The flows drove Nifty Bank to an all-time high with 14% gains in February. With robust FII flows and ensuing liquidity, we expect the sector to continue to garner FII interest in March as well," said Abhilash Pagaria, analyst, Edelweiss Securities Limited.
Top gainers in Nifty Bank in February were State Bank of India (up 38%), IDFC Bank (up 34%), IndusInd Bank (up 26%) and Bank of Baroda (up 25%).
Banking and financial stocks have seen a sustained net FII inflows since October, except for a net outflow of $345 million in January. Pagaria said FII ownership in banking has seen an increase of 109 basis points over the last three months. However, in banking and financials, FII ownership has dipped 395 bps in the last one year but flows were quite encouraging in October-December quarter.
“Provisions have started to decline for banks as they are getting comfortable with their own covid impact assessment. Larger banks are doing relatively better as compared to smaller banks. NBFCs reported lower-than-expected stressed loans across the board (in Q3FY21) more particularly in home loans, small commercial vehicle loans versus unsecured and developer loans," said Kotak Institutional Equities in a report.
According to analysts at Morgan Stanley, PSU banks have seen reduced tail risk given improved capital ratios and improving balance sheets given higher coverage ratios. “However, we continue to see structural challenges at PSU banks, which will keep return ratios muted for longer, thereby limiting a sustainable re-rating," it said.
Meanwhile, the oil and gas sector attracted second-highest net FII inflow of $676million, the highest monthly flows since March 2019.
Data showed that insurance sector received net FII inflows of $244 million, telecom ($ 243 million) and metals and mining ($ 205 million), cement ($ 185 million), power ($129 million), logistics ($ 119 million), capital goods ($ 75 million) and media ($ 1 million).
FIIs were net sellers in IT stocks worth $ 321 million. They withdrew $96 million from FMCG stocks after pumping in $2.9 billion from October to January. FIIs also sold shares worth $145 million in auto stocks. “All the three sectors have run up lot from March lows and it looks like FIIs booked profits finding valuations expensive in these sectors," said Pagaria.
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