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FPIs offloaded private banks as IL FS, rupee hit sentiment

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MUMBAI: Top foreign portfolio investors (FPIs) have trimmed their exposure to Indian private lenders since October in the sell-off that resulted in them pulling Rs 29,000 crore out of Indian equities during the month. FPIs, including Franklin Resources, BlackRock, Fidelity and T Rowe Price, sold shares to a tune of $2 billion (Rs 14,200) crore during the period in private banks alone, data compiled from Bloomberg showed.

While uncertainty over the impact of the ILFS fiasco on the country’s financial system would have triggered the selling, rich valuations of private sector banks contributed to their concerns. The sell-off was particularly intense among the commercial lenders such as ICICI and Axis Bank where FPIs sold shares worth more than Rs 4,000 crore each.

Even the bellwether stocks such as HDFC Bank and Kotak Mahindra have seen selling from FPIs indicating a significant shift in the investment strategy of these global funds. “FPIs may have undertaken sector rotation where they have moved away from banking stocks to sectors like information technology and pharma given the liquidity concerns and weakness in the rupee during October,” said Suresh Ganapathy, head of financial services research at Macquarie.

“The broader call on financials going forward will be determined by the outcome of the state and central elections and whether the weakness in the macro continues.” Indian private banking space is among the most popular sectors for FPIs and currently accounts for 25-30 per cent of the total assets under management of FPIs. The US-based mutual fund Dodge and Cox offloaded shares worth Rs 1,650 crore in ICICI Bank — the most by any FPI during the period.

Franklin Resources had offloaded shares worth Rs 1,367 crore in ICICI Bank and HDFC Bank put together.

BlackRock, on the other hand, has sold shares worth Rs 960 crore in HDFC Bank, Kotak Mahindra and Indusind Bank together.

Chicagobased Harris Associates had sold shares worth Rs 1,441 crore in Axis Bank in early November, data showed. The actual sell-off could be much higher since the data only considers those FPIs who have disclosed the changes in their portfolios as a part of regulatory filing in their home countries.

Analysts peg the total outflow from private banking stocks at around $2.5-3 billion. Private banks have been on the forefront of the recent bull-run which started early 2017.

The Private Bank Nifty, a gauge for private banking stocks, has gained 50 per cent since 2017, beating the 31 per cent return given by benchmark Nifty. Typically, FPIs have been overweight on most of the private sector banks in the last two years on account of strong growth potential and favorable macros. However, the market landscape underwent a significant change in September-October starting with the credit crisis in ILFS.

This led to an initial bout of selling in the banking space as most of the bigticket lenders have significant exposure to ILFS.

This was followed by the steep fall in the shares of Dewan Housing and Finance (DHFL) on rumors that the NBFC could default on its debt obligations.

During the period, the rupee also weakened significantly against the US dollar shifting the focus towards export-oriented sectors such as information technology and pharma. “In the light of deteriorating macros, FPIs began reducing their exposure to India.

Huge selling was seen in some of popular names like HDFC Bank, Kotak and IndusInd Bank,” said Digant Haria, AVPresearch, Antique Stock Broking.

“Barring IndusInd Bank, which was affected due to sizable exposure to ILFS, most of them have recovered in November as market gained after the fall in oil prices.” Experts say FPIs could return to their overweight stance on private lender stocks post 2019 general elections.

“Once volatility in the markets settles down, FPIs could go back to their overweight stance on private banks.

However, the rupee and crude prices would be crucial,” said head of research of an institutional brokerage.




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