Foreign institutional investors (FIIs) bought shares of non-banking financial companies worth Rs 4,000 crore in May despite liquidity concerns in the sector. According to an analysis of sectoral investment of FIIs in May, FIIs have raised stakes in 20 sectors while reducing their exposure in 15.
Apart from NBFCs, FIIs have invested heavily in the insurance and capital goods sector. Performance and financial situations of insurance firms have improved steadily, which suggests why FIIs are convinced about their longterm potentials.
The reason for buying capital goods stocks, according to analysts, includes the expectations of revival in capital expenditure that could benefit sectors such as construction, power transmission, roads and railways with the stable government. Their valuations are also below historical averages. The other sectors where FIIs have increased their stake includes banks, oil & gas, coal, media and chemicals.
FIIs have reduced their exposure in IT and Pharmaceutical sectors by Rs 3,226 crore and Rs 2,372 crore, respectively.
Analysts expect sustained pressure in margins of IT companies on account of rupee’s appreciation, lower utilisation, higher attrition, investments in business, transition costs in large deals and higher subcontracting costs.
Pharma companies have underperformed significantly over the past few years because of USFDA regulatory issues, increasing competition, entry of new players and pricing pressures in the US markets. Pricing pressures have started to weaken of late, as evident from the increased US sales of some of the biggest Indian pharma majors.
The other two sectors where FIIs have reduced their exposure in May include construction materials and auto. Both are under pressure due to a slowdown in demand.