Energy, financial stocks pick of choice for FIIs; materials remain out of favour

NEW DELHI: A much followed maxim of the market is to go after smart money, referring to investments by institutional investors. Going by that, it seems financial and energy stocks are the flavour of the season.

A BofA Securities analyst said foreign institutional investors have piled on shares of financial and energy stocks in February, hoping for a better earnings performance as the economy improves.

“FII flows (in February) were skewed in favor of financials ($2.2 billion), energy ($874 million) and telecom ($256 million); whereas IT ($317 million), staples ($152 million) and discretionary ($95 million) saw outflows,” said Amish Shah of BofA Securities.

“This broadly aligns with our strategy views of being underweight on IT, discretionary and staples and overweight on the financial sector.” The broker is also overweight on industrial and material stocks on improving capex visibility.

February 2021 marked a fifth straight month of inflows. The inflows increased to $3.5 billion during the month, from $2.7 billion in January. Among the fund category, active funds were the major drivers of flows ($3.5 billion) while passive funds invested $84 million.

On a year-to-date basis, FII inflows stand at $7.3 billion so far in CY21.

“As of Feb-end, within the NSE universe, FIIs continue to maintain overweight positions in energy, financials, IT, while FIIs are underweight materials, industrials and utilities. We expect this positioning to incrementally favor materials and industrials sectors,” said Shah.

India remains the pick of choice for foreign investors globally. The country continued to see FII inflows, when most emerging markets witnessed outflows, including Taiwan ($3.2 billion), South Korea ($1.8 billion) and Thailand ($621 million).

DIIs remain bearish

FII optimism has been delicately counterbalanced by selling by domestic investors. There were outflows of $294 million in February 2021. Active funds continue to see redemptions for the eighth month in a row, with cumulative redemptions at $9.6 billion with withdrawals across fund types.

On the other hand, SIP inflows have been steady over the past few months, coming in at about $0.1 billion a month. Besides, retail trading activity has now normalised to 62 per cent of total market volumes, as against 70 per cent at peak and the long-term average of 49 per cent.

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