Mutual funds absorb FII selling in finance stocks in July

FPIs sold shares worth over Rs 7650 crore in the banking and finance sector in July, according to data from NSDL.

While foreign portfolio investors (FPIs) were selling banking stocks in July due to concerns over deposit growth and subdued earnings, mutual funds were providing the buying support, according to data compiled by Moneycontrol.

For mutual funds, the top buys in the space were HDFC Bank wherein they bought shares worth Rs 2,648 crore, followed by Axis Bank (Rs 2,143 crore), State Bank of India (Rs 1,468 crore), and Punjab National Bank (Rs 780 crore).

Data from ACE Equities shows that the other significant purchases were RBL Bank (Rs 410 crore), Federal Bank (Rs 402 crore), Canara Bank (Rs 270 crore), and IndusInd Bank (Rs 252 crore). Meanwhile, mutual funds sold ICICI Bank shares worth Rs 2,031 crore and Kotak Mahindra Bank shares worth Rs 1,750 crore.

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On the other hand, FPIs sold shares worth over Rs 7650 crore in the banking and finance sector in July, according to data from NSDL.

Experts said FIIs were net sellers in banking stocks due to concerns over deposit growth, the RBI's proposed tighter liquidity coverage, and subdued earnings. Major banks in Q1 struggled with shrinking margins, worsening asset quality, and rising provisions, especially in credit cards, personal loans, and agriculture portfolios.

Recently, RBI had raised alarms about the growing gap between credit and deposit growth, urging banks to adopt new strategies. PSU Banks were under pressure after the RBI in July proposed stricter liquidity norms, potentially reducing LCR by 20-30 percentage points, which could force banks to boost deposits or cut loan growth, impacting earnings by 4-10%, with PSU banks hit hardest, according to analysts.

Other finance stocks that saw buying from MFs were Shriram Finance, which saw buying worth Rs 1,237 crore with Piramal Enterprises and Manappuram Finance witnessing buying worth over Rs 500 crore each. Aditya Birla Capital and L&T Finance saw buying worth Rs 325 crore and Rs 265 crore respectively.

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