Over 50% FII funds went in finance, bank stocks in Feb

“The flows drove Nifty Bank to an all-time high with 14% gains in February. With robust FII flows and ensuing liquidity we expect the sector to continue to garner FII interest in March as well,” said Abhilash Pagaria, analyst, Edelweiss Securities Ltd.

The top gainers in Nifty Bank during February were State Bank of India (38%), IDFC Bank (34%), IndusInd Bank (26%), and Bank of Baroda (25%).

Banking and financial stocks have been seeing net inflow of FII money since October, barring a net outflow of $345 million in January. FII ownership in banking saw an increase of 109 basis points (bps) in the last three months, Pagaria said. However, FII ownership in banking and financials has fallen by 395 basis points in the last one year, though flows were quite encouraging in the October-December quarter.

“Provisions have started to decline for banks as they are getting comfortable with their own covid impact assessment. Larger banks are doing relatively better than smaller banks. Non-banking financial companies reported lower-than-expected stressed loans across the board (in Q3FY21), particularly in home loans and small commercial vehicle loans versus unsecured and developer loans,” said Kotak Institutional Equities in a report.

PSU banks have seen reduced tail risk given improved capital ratios and balance sheets given higher coverage ratios, according to analysts at Morgan Stanley. “However, we continue to see structural challenges at PSU banks, which will keep return ratios muted for longer, thus limiting a sustainable re-rating,” it said.

The sector, which attracted the second highest net FII inflow of $676 million was oil and gas, recording the highest monthly flows for the sector since March 2019. The insurance sector received net FII inflow of $244 million, telecom ($243 million), metals and mining ($205 million), cement ($185 million), power ($129 million), logistics ($ 119 million), capital goods ($ 75 million), and media ($1 million), data showed.

FIIs were net sellers in IT stocks worth $321 million. They withdrew $96 million from fast-moving consumer goods stocks after pumping in $2.9 billion between October and January. FIIs also sold shares worth $145 million in auto stocks. “All the three sectors have run up a lot from March lows and it looks like FIIs booked profits finding valuations expensive in these sectors,” Pagaria said.