Foreign portfolio investors offloaded stocks worth 527.04 billion rupees ($5.65 billion), data from the National Securities Depository showed on Thursday, with financials – the most foreign-owned major Indian sector – accounting for 60% of the total outflows.
The sharp withdrawals came despite early signs of an earnings recovery in the December quarter as the U.S.-Israeli war on Iran sent crude prices surging, pushed the rupee to a record low and rekindled concerns over energy supply, inflation and India’s growth outlook.
Sustained selling dragged the Nifty 50 down 8.1% for the first half of this month, with financials and banks plunging 9.8% and 11.2%, respectively.
The Nifty 50 and Sensex have dropped about 10% each so far this year, and confirmed a technical correction last week.
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“For global investors, the worry is that higher energy prices could revive inflation, much as they did after the Russia-Ukraine war began in 2022,” said Ross Maxwell, global strategy operations lead at VT Markets, adding that this could keep monetary policy tighter for longer and weigh on energy-importing economies such as India.
Selling spanned 17 of the 24 sub-sectors classified by NSDL, with capital goods one of the few bright spots. Analysts said the intense pullback in financials had made valuations more appealing for domestic investors.
“Heavy FPI selling in financials has made them attractive and investable,” said VK Vijayakumar, chief investment strategist at Geojit Investments.
However, March outflows from financials could accelerate and hit a record high, with governance worries around HDFC Bank adding to the pressure, according to two analysts.
HDFC Bank, the heaviest-weighted stock in the benchmarks, fell about 4.3% on Thursday after the abrupt exit of its part-time Chairman Atanu Chakraborty, who cited differences over “values and ethics”.
($1 = 93.3130 Indian rupees)