Sector Wise FII Inflows in India | Sector Wise Analysis | Yadnya Investment Academy

FIIs inflows & outflows in the stock market always remains a topic of interest and these activities also effect the concerned sector up to a great extent. So, we will be reading about the inflows and outflows of FIIs and their impact on various sector in this blog. Let’s start!

Net FII inflow:

• November & December month of year 2020 was phenomenal in terms of FIIs inflows, as it crossed the mark of Rs. 8000 cr. Net FIIs in particular month were Rs. 8,132 cr. & Rs. 8,443 cr. Respectively.
• India noticed a remarkable % FIIs flows historically in comparison to other emerging markets during this Fiscal Year.
• The other way round, Net FIIs inflows in India showed an extensive downfall in month of January & February 2021 compared to inflows of November & December. It was Rs. 2,667 cr. & Rs. 3,546 cr. Respectively.
• Reasons for enormous FIIs inflows:
• Expectation of Weightage Changes of India on MSCI Index. Due to this 0.5% weightage on MSCI index, there was good active as well as passive flow of FIIs in Indian markets.
• Delightful earnings by Indian companies in Q3FY21 were also able to attract the FIIs very well.
• Addition to bumper Q3FY21 result, FIIs were also positive on the Indian Companies & the developing business environment.
• India exceptionally led the Covid-19 vaccinations drive and is driving very well. Within a short period of time, India was able to surpass the number of injected vaccinations shots to that of total number of cases of Covid-19.
•  Corporate India has provided strong growth indication for FY22. GDP numbers for next fiscal year are also quite strong.

Sector-wise Net FIIs Inflows:

• Banking & Financial Sector was the top pick by the FIIs in recent period.
• In February 2021, there was total FII inflow of $3.546 billion in Indian Equities.
• Out of these $3 billion, about 55.4% of the inflows have come in the Banking & Financial Services Industry (BFSI). In total, $1.96 billion is received by BFSI in February month.
• Next sector with highest FII inflows is Oil & Gas sector with inflow of $613 million.
• FIIs inflows of other sectors are as follows:

Retailing: $253 million; Insurance: $244 million; Telecom: $243 million; Metals & Mining: $207 million; Cement: $185 million; Power; 129 million; Logistics: $119 million; General Industrials: $110 million & Healthcare: $87 million.

Key Drivers of Robust FII inflows into BFSI sector in Feb-21:

1) Improving Business Environment led by Better-than-expected Economic recovery:

• There are tough debates ongoing on the recovery of economy i.e., whether it is K-Shaped recovery (Where some sectors are performing well and some are struggling to perform) or V-shaped recovery (Here, the belief is that in the growth of economy, there will be always some sectors whose performance may not match with the economy).
• And finally, the perceptions of institutional investor come true, as we can witness the V-Shaped recovery in the economy.

2) Favourable Provisions in Union Budget made BFSI sector attractive for the investors

• To clear off the mess of NPAs, concept of Bad Bank was introduced in the Budget 2021 by the Finance Minister. This concept built a great momentum in the Banking & Financial Services sector.
• Capital Infusion of Rs.20,000 Cr in Public Sector Banks with an assurance that more funds can be allocated to PSU banks, if required.
• Another news that acted positively for this sector was Privatization of 2 Public Sector Banks and a General Insurance Company. Privatisation of these banks and insurance companies will build Financial Expertise & Technological Expertise by private investors

3) RBI’s Accommodative Monetary Policy:

• India’s is quite neutral on its central bank Accommodative Monetary Policy ensuring enough liquidity in the banking system to support economic growth.
• In Simple sense, RBI is not in not in the mood of increasing interest rate just like it is happening in the case of Bond Yield across the globe, and RBI ensures that they have sufficient liquidity to manage any kind of situation.

4) Banks are getting comfortable with their own COVID impact assessment:

• With respect to interim decision of Honourable Supreme Court, Banks were asked to declare pro-forma NPAs and accordingly provisioning in good amount for the same and making them comfortable.
• Consequently, after a particular time period as the provisioning amount started declining for banks, there is expectation of rise in net profit in coming quarters.

5) NBFCs reported Lower-than-expected Stress Loans (NPAs):

• NBFCs have also gave a sound signal in terms of NPA across the Q3FY21 where they have reported lower NPAs than expected, particularly in Home Loans & Commercial Vehicle Loans.

6) Larger Banks are doing relatively better than Smaller banks:

• High Capital Adequacy Ratio and good ROA of large banks demonstrates how well they are prepared.
• Along with the presence of organic growth in Banking Sector, these large banks can also look out for inorganic growth through acquisition of small banks or PSU banks.

Monthly Performance of Nifty Bank in February 2021:

• In the month of February, Nifty Bank have delivered return of decent 14%.
• Top performers in Nifty Bank in February 2021 were:

SBI with the highest return of 38% in one month, IDFC First Bank with 34%, IndusInd Bank and Bank of Baroda delivered return of 26% & 25% respectively.

• Big names such as HDFC Bank, Kotak Bank, etc. could not able to make place in the top performers list of February 2021, as the banks which were beaten down hard during pandemic rebounded very well in this rally.

Sectors with Net Outflow in Feb-21:

• FMCG Sector has reported a heavy net outflow of FIIs of $406 million in the February month of 2021.
• Total FII inflow in FMCG Sector during October 2020 to January 2021 were $2.9 billion, Whereas in February, FIIs were the net sellers in February 2021 with outflow of $0.4 billion.
• Other sectors which have reported Net FIIs outflow in Feb-21 were IT, Auto & Pharma sector, the net outflow in amount were $321 million, $145 million & $142 million respectively.
• Due to this outflow of FIIs in these 4 sectors, stocks in these sectors are underperforming.
• Investment in Banking Industry is one of the aggressive & risky strategy, and now Institutional Investors are betting on the same.

Conclusion:

BFSI becomes the favourite sector for the Institutional Investors in the month of February 2021 with a heavy FIIs inflow of $1.96 billion in a single month. On the other hand, FMCG, IT, Auto & Pharma Sector witnessed outflow and thereby stocks of the concerned sector are underperforming in the current market.

Also, with the heavy inflows in BFSI, Institutional Investors have presented their view of aggressive approach and withdrawal from defensive sectors like FMCG, etc. and hence one should not participate in ongoing rally of Banks and Finance sector stocks without assessing their risk profile and proper study of the sector.