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Overseas investors are finding opportunities in India despite record outflows from local shares last month, signaling potential in specific sectors.
Industrials, health-care and telecommunication stocks have drawn net inflows of about $3 billion each this year through Nov. 15, according to data from the National Securities Depository Ltd. That’s in contrast to overall withdrawals of over $2 billion in the period, following an unprecedented wave of selling in October.
Global funds have piled into sectors with strong growth potential, while pulling back exposure to sectors like banks, consumer and energy — the stragglers of 2024 — as the momentum that drove the broader market to a life-time high in September has been dented by slowing earnings growth and a surge in share supply.
“Overseas investors are waking up to the fact that they own yesterday’s winners,” said Ritesh Jain, founder of Pinetree Macro Pvt., a global asset manager. It’s clear that the government’s focus is more on an investment-led growth and less of consumption, he said.
Prime Minister Narendra Modi’s efforts to boost manufacturing have brightened the outlook for infrastructure firms, while telecom firms are benefiting from an increase in prices as intense competition for subscribers cools.
Software exporters’ shares snagged the most inflows in the first half of the month, latest data show. Donald Trump’s victory has strengthened the investment case for the sector amid hopes that likely tax cuts in the US may drive demand for IT services. A gauge tracking these stocks has gained over 6% in November, bucking the weak market sentiment.
In comparison, financial stocks have seen outflows of over $8 billion this year amid narrowing margins and concerns about asset quality. Consumption-related stocks are struggling with sluggish urban demand, while energy shares have been under pressure due to weak refining margins.
Foreign investors are also selling local debt, with sovereign bonds eligible for inclusion into global indexes set to record their first monthly outflow since being added to JPMorgan Chase and Co.’s gauge in June.
“The financial sector dominates foreign investors’ holdings, accounting for nearly 30% of their $850 billion in assets,” according to Bloomberg Intelligence analyst Nitin Chanduka. “The sector’s high weight means foreign outflows from it could mask inflows into other areas,” he wrote in a note.
