Financial Stocks Continue To See Most FPI Outflows In February Despite Valuation Cuts

Financial stocks once again topped monthly outflows as global funds continued to offload, despite the counters having the cheapest valuations amid the ongoing correction.

Financial services stocks saw an outflow of $803 million from foreign institutional investors in February, while the fast-moving consumer goods companies followed suit with $793 million worth selloff, according to data from National Securities Depository Ltd.

In January, these funds offloaded $2.88 billion in financial stocks followed by a $747 million selloff in information technology.

During the month, the MSCI rejig will also have to be taken into consideration as multiple banks saw revisions from key indices, triggering huge flows. IndusInd Bank Ltd. was among the top 10 weight increases in the February quarterly review, while HDFC Bank Ltd. and ICICI Bank Ltd. were among the top weight reductions.

During the month, foreign institutional investors offloaded a total of $3.9 billion, adding to the total selloff of $15.3 billion so far this year. Capital goods, automobile, construction materials and consumer services stocks were among the other sectors to see selling by global funds in February.

The selling seen in key sectors comes amid global uncertainties, including geopolitical and trade tensions and the expectation of a stronger dollar and higher bond yields, with the onset of Donald Trump's presidency in the United States.

The sell-off in these sectors is commensurate with the decline in the stock value. Nifty Bank fell 2.51%, while Nifty FMCG slipped over 10% in February, compared to a 5.8% decline in the benchmark Nifty 50.

Nifty Bank is trading at 11.8 times price to earnings, compared to the average 10-year forward valuation of 15.4 times, the cheapest among the major indices. Nifty FMCG is trading at 40 times price to earnings.

The benchmark NSE Nifty 50 and the BSE Sensex have fallen 15.2% and 14.2%, respectively, from the previous peak, triggering the worst fall since 2020.

Despite expectations of a rebound of global fund flows into India, Maneesh Dangi remains cautious, while adding that cheap valuations alone won’t be enough to lift the battered Indian stocks.

“It’s not clear if FIIs will return in a big way. The secular inflow of FII money into India effectively ended in the early 2010s. On a net basis, they come and go, but as a percentage of GDP, it doesn't hold up any more,” the founder and chief executive officer of Macro Mosaic Investing explained.