Global Funds Bolster Position On Indian Financial And Tech Shares Going Into 2025

India's information technology and financial stocks continue to be the favourites for global investors as they position their allocation going into the new year, with US President-elect Donald Trump's trade policy in focus.

After seeing an inflow of $653 million in technology stocks in November, foreign investors pumped in $796 million in the first half of the final month of 2024. Financial services—which are attractive on the valuation front—saw an inflow of $875 million against $293 million last month.

Cumulatively, investments into tech and financial stocks since November adds to $1.44 billion and $1.16 billion, respectively, according to the latest data from the National Securities Depository Ltd.

The surge in allocation by foreign portfolio investors in IT stocks commensurate with the rally in the sector. The benchmark for Nifty IT stocks rose nearly 10% since November while the gauge for oil and gas declined by 6.5%. During the same period, NSE Nifty 50 index slipped by 2.5%.

The overall foreign investors' buying in the first half of December stood at $2.5 billion, after offloading stocks worth $2.5 billion in November, marking a turnaround from the record rout.

Oil and gas, and automobile stocks continued to face headwinds from FII selling. Global funds sold oil and gas stocks worth $629 million followed by automobile and FMCG with $215 and $195 million, respectively, in the first half of December.

India-specific issues like slow growth concerns and flat corporate earnings in the second quarter contributed to the FII selling, according to V K Vijayakumar, chief investment strategist at Geojit Financial Services. "The strength of the US economy, good corporate earnings growth and strong dollar are factors favouring the US."

Global funds will turn buyers in India on positive news around GDP growth and a rebound in corporate earnings growth, Vijayakumar said. "Third-quarter data can be mildly positive."

FII selling has depressed the prices of segments of large-caps like banking where the valuations are attractive now, Vijayakumar said. "Investors can utilise this market downturn to buy quality large-caps. Pharma, IT and digital platform companies are likely to buck the downtrend."

Bank and financial stocks are the most attractive sectors among the indices on the National Stock Exchange. Nifty PSU Bank trades at a price to earnings ratio of 6.7 times while the Nifty Oil and Gas trades at 12.75 PE. The benchmark Nifty 50 trades at 22 PE.

As India enters the fifth year of its investment upcycle, expectations for equity returns in 2025 are set to moderate, with the supply of equity hitting new highs, according to Jefferies.

Despite strong domestic equity flows and continued economic growth, Jefferies' outlook for the Nifty remains subdued, with a target of 26,600 by December 2025.