Top foreign portfolio investors (FPIs) have trimmed their exposure to Indian private lenders since October amid growing concerns about the non-banking financial companies (NBFCs) and its possible impact on Indian banking sector. FPI sold shares to a tune of $2 billion (Rs 14,200) crore during the period in private banks alone, data compiled from Bloomberg showed.
This sell-off was on account of portfolio rebalancing being undertaken by FPIs as the banking sector was facing multiple headwinds. It assumes significance as Indian private banking space is among the most popular sectors for FPIs and currently accounts for 25-30% of the total assets under management of FPIs.
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 IL&FS. This led to an initial bout of selling in the banking space as most of the big-ticket lenders have significant exposure to IL&FS. 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, Rupee also weakened significantly against dollar shifting the focus towards export oriented sectors such as information technology and pharma.
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, Rupee and crude prices would be crucial,” said head of research of an institutional brokerage.
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