Indian Stocks See Highest FII Inflows Yet With Tech Sector Seen As Favourable

Overseas investors pumped in the highest monthly inflows for the year so far, having pocketed capital goods, and automobile stocks in the run-up to the Union Budget. Information technology stocks saw the highest fortnightly inflows in more than four months, on positive earnings outlooks from industry leaders.

So far this month, overseas investors have bought stocks worth $4.89 billion, according to data from National Securities Depository Ltd. The previous highest monthly inflows were recorded in December 2023 at $7.94 billion.

Global investors had picked capital goods, and automobiles and auto components stocks worth $432 million and $358 million, respectively, in first half of July to capitalise on gains from the budget announcements.

Meanwhile, domestic institutions had bought stocks worth Rs 7,150 crore during the month, according to provisional NSE data. In the week ahead of the budget, domestic funds turned cautious as they booked profits after driving India's equity benchmarks to new highs.

FIIs have bought information technology stocks worth $331 million in the month, leading the rally in the benchmark NSE Nifty IT, which rose by 8.53% during the month. Tech stocks saw the highest inflows in the last nine fortnights.

Overseas investors are piling on to tech companies amid hopes of a demand revival presented by the companies, following better-than-expected results for most of them.

The rally in the tech benchmark was led by Coforge Ltd., Infosys Ltd., and Mphasis Ltd., which gained nearly 15% each this month. Wipro Ltd. was the only drag on the index, having slid 4.8% during the same period.

There have been no meaningful upgrades to justify the 24% move in the sector, Citi said in a note on July 13. "So the entire rally is more rerating driven."

While Q1 was better, there are several factors to keep in mind, like Tata Consultancy Services Ltd. and Infosys Ltd. benefitted from India revenues and one-offs in Q4 created a favourable base for Infosys and LTIMindtree Ltd., the note said.

The brokerage is positive on Coforge Ltd. and LTIMindtree and is negative on Mphasis Ltd. and Persistent Systems Ltd.

A notable trend was the lack of buying in financial services, which partly explains the poor performance of financial services in July so far, according to VK Vijayakumar, chief investment strategist, Geojit Financial Services Ltd. "If the recent trend of weak dollar and bond yields persists, FPIs are likely to continue their buying in the market."