Foreign Selling In Financials, Energy Stocks Tops $1.5 Billion In November First Half

India's financial and energy stocks continued to bear the brunt of sell-off by foreign investors as the combined outflow surged past $1.5 billion in the first half of November, while the overall asset under custody in domestic stocks plunged by $21.5 billion.

The overall foreign investors' selloff in the first half of November stood at $2.6 billion while these funds have sold for a record 39 sessions weighed by weak earnings. The asset under custody in the market fell to $823 billion, a fall of 2.5% since the beginning of the month, after a record fall in October.

Since October, financial stocks have seen a selloff of $3.39 billion while oil, gas and consumable fuels saw $3.9 billion, according to the data from National Securities Depository Ltd.

The sell-off in these stocks is commensurate with the decline in the stocks of the sector as energy stocks gauge—Nifty Energy—fell 6.92% this month. The index of the National Stock Exchange's financial stocks—Nifty Financial Services—fell 2% this month led by Shriram Finance Ltd. and Bajaj Finserv Ltd.

Automobile, fast-moving consumer goods and telecommunication stocks also witnessed heavy selling while the information technology and construction sector were among top spaces that saw inflows.

The IT space saw an inflow of $366 million while the construction stocks got $227 million inflows from global funds.

Global funds have sold stocks worth over Rs 1.59 lakh crore since Sept. 27, according to provisional data from the National Stock Exchange. Domestic institutions have been net buyers of shares worth Rs 1.52 lakh crore during the same period.

India's stock benchmarks—NSE Nifty 50 and BSE Sensex—briefly entered the so-called correction zone led by a persistent selloff by foreign investors. The Nifty corrected by 10.1% from the recent peak, while the mid- and small-cap indices corrected by 9.4% and 8.4%, respectively.

A key trigger is the muted earnings performance given the economic slowdown. Global brokerage firm Jefferies has cut fiscal 2025 earnings estimates for over 60% of the 98 companies, the highest downgrade ratio since early 2020.

Weak earnings, high valuations compared to other markets, and global economic influences such as rising U.S. bond yields led to the selling by FIIs, according to  Vipul Bhowar, senior director-listed investments, Waterfield Advisors.

Fresh allocations or significant investments are likely to occur once there is greater clarity regarding the Trump administration's policies, he said. "Due to geopolitical uncertainties and changing economic landscapes, FII activity is likely to remain volatile."

In a short change of stance, CLSA Ltd. moved its "tactical allocation" from China to India following Donald Trump's victory in the US elections of 2024.

“The initial reaction (to the PBOC stimulus) was to rent rather than buy the rally, ⁠yet we committed funds at the start of October by tactically deploying some of our overexposure on India to China,” strategists at CLSA said.