FPIs bet big on financial stocks

Mumbai: Despite concerns regarding the high NPAs in the banking system, overseas investors have increased their exposure to financial sector stocks on expectation that a recovery in domestic growth along with the measures initiated by the government and the Reserve Bank of India would help contain further deterioration in asset quality and improve margins.

According to Kotak Institutional Equities, foreign portfolio investors have pumped in $4,936 million in financial sector stocks accounting for 65 per cent of their total investment during the first six months of this calendar year.

Energy and industrial sectors was the second and third highest recipient of foreign fund flows during the period at $841 million and $580 million respectively. In 2016, the financial sector stocks received just $422 million worth of investment while the energy and industrial sectors received a slightly higher investment of $1,465 million and $631 million respectively.  

Analysts at Kotak added that the total allocation to India and China constituted more than one third of the average Asia ex-Japan fund portfolio. China has seen the highest inflows of $2.4 billion in May, followed by South Korea and India, which have seen $1.9 billion and $1.8 billion of inflows.  

However, Kotak Institutional Equities pointed out that the fund allocation to India saw a marginal dip in May as compared to its previous month. Allocation to India by Asia ex-Japan funds has come down to 13.3 per cent in May from 13.6 per cent in April while the fund allocation to India by global emerging market (GEM) funds remained around 11 per cent.