FPIs continue to be bearish on oil & gas, power stocks in February, offload equities worth ₹7,821 crore in the two sectors

• Overall, FPIs sold equities worth ₹5,293 crore in February, while they sold equities worth ₹28,851 crore in the previous month.
  
• February is the second consecutive month of sell-off by FPIs – they turned bearish on Indian equities in January coinciding with a slide in the Sensex and the Nifty50.
  
• The sell-off in the financial services sector has abated in February – FPIs were marginal net buyers in the sector at ₹105 crore vs a sell-off worth ₹15,204 crore in January.
  

Foreign portfolio investors (FPIs) continued their bearish stance on stocks in the power as well as the oil & gas sectors during February, extending their sell-off in these two sectors to a cumulative ₹7,821 crore, as against ₹8,021 crore in January.

February is the second consecutive month of sell-off by FPIs – they turned bearish on Indian equities in January coinciding with a slide in the Sensex and the Nifty50. Mounting fears of rate hikes and hotter-than-anticipated inflation print, combined with US 10-year bond yields edging higher contributed to the sell-off this month.

“FPIs are likely to sell at higher levels since the US 10-year bond yield is at 4% and this is attractive risk-free investment,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

India’s benchmark indices trended lower in February – the Nifty50 declined 2% while the Sensex fell 1% in the period. In 2023 so far, the Nifty50 has fallen 2.72%, while the Sensex has declined 1.65%.

Overall, FPIs sold equities worth ₹5,293 crore in February, while they sold equities worth ₹28,851 crore in the previous month.

The oil & gas sector emerged as the top sector when it comes to FPI sell-off – at ₹4,973 crore, it accounted for nearly 94% of the total equities sold by FPIs during February

Oil & gas stocks did not have it easy last year either – FPIs sold oil & gas stocks worth ₹9,839 crore in the second half of 2022.

That said, the sell-off in the financial services sector has abated in February – after selling financial services stocks worth ₹15,204 crore in January, FPIs were marginal net buyers in the sector at ₹105 crore in February.

Rising US treasury yields could result in continued capital outflows

Rising US treasury yields could put more pressure on foreign capital flows in emerging markets like India.

“Bond yields in the US continued to rise in anticipation of the Fed turning more hawkish in the context of the slow disinflation in the US. Rising rates in the US might lead to more capital outflows from emerging markets,” Vijayakumar added.

For context, the US 10-year bond yields rose from 3.52% at the end of January this year to 3.91% at the end of February. These yields have continued to rise in March too, touching 4.07%.

US Fed chair Jerome Powell’s hawkish commentary in his congressional testimony could increase FPI outflows from India.

FPIs have invested ₹10,042 crore in Indian equities in March so far – however, barring the ₹15,446 crore investment by GQG Partners in the Adani group, the net flows are negative at ₹5,404 crore in the first five trading sessions of the month.

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