Power, banking and IT stocks see sharp sell-off on FII pull out and as investors carve out money for LIC IPO

• Indian equity markets have been on a weak trend for months as foreign investors have been pulling out investments consistently for four months now.
• Power, banking and information technology were some of the worst performing sectors and victims of the sell-off on Tuesday.
• Besides, some sell-off by investors is also to keep some money for LIC’s upcoming IPO, which is expected to seek huge demand.

Market mood since October 2021 has not been consistent because foreign institutional investors (FIIs) have been pulling out their investments on expectation that the US central bank will hike interest rates at least four times in a year.

In the last few months, the US central bank has been looking to stop measures for economic stimulus and increase interest rates sooner than expected. Rise in the US interest rate does not bode well for the Indian markets, which have seen strong foreign inflows because of pandemic-led easy monetary policies in the US till now.

Power, banking and information technology (IT) company stocks are some of the big victims of Tuesday’s market sell-off. While there is no fundamental change to these sectors, some of the sell-off is for profit booking, say analysts.

Constant selling of shares by foreign investors for the last four months have also kept the market under pressure.
“Overall market is not holding the gains. I think, whatever short gains that people make, they are willing to book profit. Other than that, from the budget day [February 1] till today no fundamentals have changed for the power sector and distribution. The correction is largely profit booking correction. Nothing to do with fundamentals, also these stocks are not expensive,” said Deven R Choksey, managing director at KR Choksey Investment Managers.

Here are the worst performing stocks in the most battered power sector on February 8.
"Yesterday's fall should be taken with a grain of salt because due to an unexpected holiday [public holiday in Maharashtra to mourn singer Lata Mangeshkar’s death], volumes were a bit thin. This [power] sector has done well since the last weeks and with the Indices under pressure, some profit booking is expected. Power on its own has been a very depressing sector and the recent reforms are helping the industry come out of a bad place. Plus the budget infrastructure push is a big tailwind,” said Viraj Vyas, technical & derivatives analyst at Ashika Group.

Other than cues from weakness in Asian markets, investors in India seem to be reserving some cash to invest in Life Insurance Corporation’s (LIC) mega initial public offering (IPO) that is likely to launch before March end.

“Since LIC will be one of largest IPOs, all categories of investors — mutual fund, insurance companies, individual investors — will be subscribing to the IPO. One of the reasons for the broad correction is that ahead of the LIC IPO, people are willing to keep their positions light,” said Choksey.

Investors are also awaiting the Reserve Bank of India's (RBI) commentary on inflation and bond yields in the monetary policy meeting this week amid rising oil prices and the government's higher spending plans.

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