Automobile, banks, oil & gas, construction materials and household-cum-personal products are the top five sectors in the equity market to witness maximum sell-off by foreign portfolio investors (FPIs) during the first 10 months of this calendar year.
According to sector-wise statistics available with the NSDL, between January and October, FPIs collectively made net sales of Indian equities and bonds worth ₹1,00,400 crore (includes ₹42,137 crore in equities and ₹58,153 crore of debt securities).
FPIs, who remained in sell-off mode for most part of the year barring January, March, July and August, made a two-year high single month net sales in October pushing markets into panic mode. They dumped Indian equities and bonds collectively worth ₹38,900 crore in October.
“Interest rate hikes by the US Fed, weakened Indian rupee against dollar, and lower than expected earnings of corporate India have not gone well with FPIs,” said Deepak Jasani, Head — Retail Research, HDFC Securities.
Equity market
In the equities segment, automobiles and auto components sector witnessed the highest sell-off at ₹17,300 crore, while bank shares took the second place with net sales of shares worth ₹15,200 crore. “FPIs have trimmed their positions in consumer discretionary sector (which includes consumer durables, FMCGs and automobile) that are highly valued compared to the expected slowing in growth rates,” Jasani said. He further added that expectations of a slowdown in growth rates in the auto sector due to various factors, including rising crude oil prices (and consequent fuel price rise), could have pushed FPIs to book profit in the auto sector. The other majors sectors that witnessed higher net sales include oil & gas (₹9,768 crore), construction material (₹6,984 crore) and household and personal products (₹4,557 crore).
Healthcare services and transportation figured in the buying list of FPIs as they made net purchase of equities worth ₹2,126 crore and ₹3,187 crore, respectively. Net purchases in the transportation sector include ₹1,496 crore worth of aviation shares and ₹2,543 crore worth of shares from marine and port services.
Debt market
On the debt side, sovereign bonds witnessed net sales of ₹39,700 crore, constituting 68 per cent of the total debt sales of ₹58,153 crore recorded for the 10-month period.
“FPIs increased exposure in Indian debt market from February 2017 onwards when the 10-year yield was around 6.5-6.9 per cent when they expected these rates to fall further and the Indian rupee to stay stable. However, in November 2017, the yields crossed 7 per cent and later in April 2018, the Indian rupee crossed 65 against the US dollar,” Jasani said. He added that these factors created panic among the FPIs as their dollar-denominated returns got impacted due to rising yields coupled with weakening Indian rupee.
With the 10-year yield currently at 7.75 per cent and the rupee against the greenback settling at 72 after weakening to 74.88, Jasani said there is no incentive for FPIs to stay invested in Indian debt market when interest rates are increasing in the US and the rupee outlook is uncertain.
The IL&FS crisis and the consequent liquidity crunch in the non-banking financial sector shocked foreign investors who made net sales in the debt markets to the tune of ₹20,000 crore in two months (September and October). Net sales from ‘Other Financial Services’ category (includes NBFCs) alone stood at ₹14,000 crore in the first 10 months of the year.
“FPIs panicked on the liquidity issue and credit rating scare such as IL&FS” Jasani said.
He added that, out of the total investment limit of ₹6 lakh crore, FPIs have already touched 76 per cent in corporate bonds and 74 per cent in government securities.