Financial Stocks' Woes Continue In 2025 As Global Funds Shun With $2.8 Billion Selloff

India's financial stocks kicked off this year with heavy selloffs following a meek 2024 as global funds pulled out $2.8 billion in January despite being the cheapest among sectors.

After seeing a volatile year, financial stocks saw the worst selling by foreign institutional investors. In January this year, these funds offloaded $2.88 billion in financial stocks followed by a $747 million selloff in information technology.

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 selloff in these sectors is commensurate with the decline in the stock value. Nifty Bank fell 2.5% while Nifty IT slipped 1.56% in January, compared to a 0.58% decline in the benchmark Nifty 50 index. Nifty Bank closed 2024 with muted gains of 2%, while Nifty IT gained 22%.

The selling also comes as India Inc. continues to post muted third-quarter earnings. However, the tech pack stood out on positive commentary. Heavyweights like Tata Consultancy Services Ltd. and Infosys Ltd. eye revival in the upcoming quarters, with improved guidance.

Meanwhile, analysts are bullish on banks and technology stocks — India's biggest sectors by weightage. These sectors are poised for a rare joint outperformance amid dovish comments by the central bank and the expected economic growth pick-up, Jefferies said.

Nifty Bank trades at 12.9 times price to earnings compared to the average 10-year forward valuation of 15.4 times. Nifty PSU Bank trades at 6.5%, the cheapest among the major indices.

Banks also look attractive from a valuation standpoint while improving demand commentary is a key positive for the technology sector, Jefferies said. "Valuation on a higher side, but continued positive news on demand, alongside likely rupee depreciation, should aid further outperformance."

Capital goods and healthcare stocks were among the sectors that saw outflows with $658 million and $505 million, respectively. Only a few sectors saw inflows although the quantum remained muted. Textiles saw inflows with $70 million followed by inflows of $41 million in chemicals.

So far in the year, the FPIs have sold equities worth Rs 9.47 billion. In January, the FPIs sold equities worth Rs 9 billion, according to the National Securities Depository Ltd.'s data.