firm Edelweiss Securities.
FPIs continued their buying spree in the Indian market in the last month of the financial year 2021 (FY21) albeit with some moderation owing to surging COVID-19 cases.
Edelweiss Securities pointed out in a note that the FPIs continued being net buyers in the Indian equities with a net investment of $1.43bn in March 2021.
With a surge in COVID-19 cases and fresh restrictions countrywide, the flows tapered down in comparison to the previous five months' average net inflow of $5 billion, Edelweiss said.
The most remarkable observation, Edelweiss pointed out that for the first time FPIs deployed a sizeable amount in the real estate sector.
"In March 2021, FPIs parked in $497 million which equates to almost 35 percent of the total deployment. From April 2020 to March 2021, they pumped in $442 million and if we exclude March month’s flow then FPIs have taken out $55 million from the sector," Edelweiss said.
"Although in March, NSE Realty index was down 4.5 percent, the outliers within the sector were Oberoi Realty (up 5.5 percent) and Prestige (up 2.5 percent). The current sectoral weight of FPIs in real estate is 1.02 percent," said the brokerage.
Insurance was the next sector to receive the most flows with FPI deploying $496 million. Edelweiss underscored that the meaningful flows could have come in SBI Life as BNP Paribas Cardiff launched a mega share sale in which they exited almost 4.9 percent of the stake and stock closed 2 percent for the month.
The oil and gas sector received $460 million and for the last five months FPIs have pumped in $1.9 billion and now hold 11.2 percent weight in the sector, Edelweiss said.
What triggered the inflow in these sectors?
Real estate stocks saw some traction due to lower interest rates and after the Maharashtra government cut stamp duty. However, a fresh spike in COVID-19 cases dented the sector in March.
Binod Modi, Head - Strategy at Reliance Securities highlighted that there has been a shift in preference of higher allocation towards sectors, which can potentially do better or has already started witnessing traction in business activities.
"Real Estate sector has been seeing a steady improvement for the last couple of months led by lower interest rate scenario, reduction in stamp duty in certain states and increased affordability among buyers. Similarly, the ongoing COVID-19 pandemic and resultant disruptions across the chains have made people realize the importance of insurance products," said Modi.
"Government’s strong focus towards building up strong infrastructure for gas pipelines and continued thrust towards CNG vehicles and green energy attracted investors’ interest in oil & gas space," he said.
Nitin Shahi - Executive Director of FINDOC, is of the view that investment in insurance by FPIs increased after the limit in the insurance sector was hiked to 74 percent.
Besides, favourable government policies, stimulus measures and interest rate differential also played important role in investment decisions by FPIs.
Gaurav Garg, Head of Research at CapitalVia Global Research believes after Maharashtra government eased some tax on real estate, some of the quality realty stocks including Godrej Properties, Oberoi Realty saw some traction and institutional buying had been significant.
Can this momentum sustain?
With further improvement in the economy and COVID-19 coming under control, the Indian market is expected to witness sustained FPI inflows.
"Overall, Investment in India is likely to continue in the upcoming years & with privatisation of PSU going to happen this year, FPI investments are expected to surge or even surpass what we witnessed in FY21," said Shahi.
There may be sectoral rotation which will depend on the earnings, government policies and other factors too.
Teresa John - Economist (Institutional Equities) at Nirmal Bang pointed out that globally cyclical sectors are witnessing interest in anticipation of recovery.
"In India, policy support and fall in interest rates is expected to support the residential real estate sector and flows may sustain going forward as well. Oil & gas is being supported by the global upturn in commodities which may be relatively short-lived," John said.
The Head of Strategy at Reliance Securities believes the insurance industry will see healthy traction in the ensuing period as the pandemic has made people realise the importance of insurance products.
Garg of CapitalVia Global Research is not much bullish on the oil & gas pack and advises investors to stay cautious on this sector.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.