FPIs’ cyclical bets rise after change of govt

Tags: News

Financials, CG & auto stocks see biggest rise in exposure

Foreign portfolio investors’ (FPIs) raised their exposure to Indian equities largely in six sectors — banking and financials, capital goods, metals and mining, utilities, automobile and oil & gas — in the first month since the election outcome that threw up a new government to power at the Centre.

FPI is a new investor category created by the capital market regulator fr­om June 1 by clubbing for­eign institutional inves­tors (FIIs), sub-accounts and qualified foreign investors that include individuals and non-institutional entities into one basket.

Data from the National Securities Depository (NSDL) showed total assets under custody of the FPIs in domestic equities rose by Rs 1,42,840 crore, or 9.3 per cent, between May 15 and June 15 to touch Rs 16,82,055 crore.

Out of this, Rs 22,257 crore was net FPI inflows during the month and the rest was accounted for by an increase in assets due a rise in stock prices.

BSE Sensex rose 5.5 per cent between May 15 and June 15, compared with a 9.28 per cent rise in the value of FPI assets, which reflected gains on the additional investment made during this period.

Market analysts attributed the rise in FPI exposure to these sectors to a stable government at the Centre and signs of ‘green shoots’ in the economy as reflected in the latest auto sales numbers, IIP readings and HSBC purchasing managers indices for manufacturing and services.

“The sectors where FPIs have put in most of their money are all cyclical ones — be it auto, banking or infrastructure,” said Rajiv Mehta, assistant vice-president for research at IIFL.

“The recent IIP, auto sales (even CV sales), PMI data may not be too optimistic, but they are certainly hinting at a bottoming out. When the economy bottoms out, cyclical sectors tend to do well. Add to that hopes of reforms by the new government. It is likely that this theme will play out throughout the year,” he said.

Domestic car sales grew 9.71 per cent on a month-on-month basis in May, according to Siam data. Commercial vehicle sales rose 9.22 per cent from the previous month.

Factory output, as represented by the index of industrial production (IIP) grew 3.40 per cent in April. This was the highest growth in IIP since March, 2013. HSBC PMI for services jumped to a 17-month high at 54.4 in June. The manufacturing PMI at 51.50 for the month was also the highest since February.

NSDL data showed the total exposure of FPIs to the banking and financial services sector grew by 10.4 per cent, or Rs 43,295 crore, between May 15 and June 15. This was higher than the 7.8 per cent rise in the CNX finance index, the benchmark that represents the banking and financial companies on NSE. Of this, their exposure to the banking sector alone appreciated by Rs 22,300 crore, growing at a faster clip of 8.67 per cent than the 6.11 per cent growth in CNX bank.

Metals and mining stocks witnessed a sharp 27.47 per cent growth in FPI asset under custody, as did the utilities sector, where their assets grew 21.69 per cent. The BSE metal index rose 21 per cent during the same period and the power index 17.71 per cent.

Espirito Santo Securities said the mining sector would continue to crawl, as it doesn’t see an immediate end to the problems plaguing it. “We continue to believe that the fundamentals of the domestic ore market will eventually play out,” the brokerage said in a note.

FPI assets in the auto and oil & gas sectors grew by 13.0 per cent and 7.8 per cent, respectively, compared with an 8.8 per cent rise in the CNX auto index and 8.2 per cent expansion in the CNX energy index.

The capital goods sector saw FPI assets grow 14.0 per cent, or by Rs 13,694 crore, during the month, while the BSE capital goods index rose 21.32 per cent. Capital goods stocks have been rising at a steady pace over the past few weeks on hopes of higher allocation in the budget for urban development, power and renewable energy.

“Further foreign inflows will depend on whether the budget, which is expected to outline the new government’s priorities, comes in line with expectations. If it does, banking, infrastructure and oil & gas sectors may attract additional FII investment,” said Rikesh Parikh, assistant vice-president for institutional corporate broking at Motilal Oswal Financial Services.

FPIs invest in domestic equities mainly through mutual funds, investment managers, sovereign wealth funds and pension funds. US, Mauritius, Singapore and Luxembourg are some of the major spots from where domestic equities market receives maximum investment.

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