Global Funds Turn Bullish On India's Financial Services With $1-Billion Inflows In June

Overseas institutions have seemingly reversed their negative outlook towards India's financial services companies as June saw them pour $1.1 billion into the sector, compared to an outflow in the previous month.

This comes in as net investment by foreign institutional investments in Indian equities stood at $3.1 billion during the action-packed month, when the Bharatiya Janata Party secured a third consecutive win in the last Lok Sabha elections, with support from National Democratic Alliance parties. June also saw the world's fifth-largest stock market post the best monthly gain in the year.

Inflows in financial services coincided with stock movement in the banking gauges, as they rallied alongside the equity market benchmark.

Nifty Bank has risen by 6.8% during the month, while Nifty Financial Services gained 7.84% during the month, compared to a 6.57% rally in the benchmark NSE Nifty 50.

Net inflows in June come after two consecutive months of outflows. FIIs recorded an outflow of $3.1 billion in May, according to data from the National Securities Depository Ltd.

Foreign investors have bought Indian equities worth $244 million so far this year, the data showed.

Political stability, despite BJP not getting the expected winning margin, and strong inflows from DII and retail investors, forced FPIs to turn buyers in India, said VK Vijayakumar, chief investment strategist, Geojit Financial Services Ltd., in a weekly note.

Meanwhile, foreign investors remain bullish on telecommunications and consumer services, which attracted inflows worth $952 million and $563 million respectively.

During the month, FIIs withdrew the most from metals and mining. Construction, oil, gas and consumable fuels, and power companies also saw huge outflows in June.

There was heightened activity in large trades in the telecom sector during the month. The big trades in June were led by Indus Towers Ltd. with a deal value of Rs 16,734 crore, which the Vodafone Group proposed to offload as part of its fundraising plans. Further, Bharti Airtel Ltd. acquired 2.69 crore shares of Indus Towers, worth 1% equity via on-market transaction and increased its stake to 48.95%.

While global funds have been net buyers, inflows may not be the highest among emerging markets, according to Vipul Bhowar, director, listed investments, Waterfield Advisors. "However, the long-term outlook remains positive, providing reassurance about the stability of FPI flows in India," he said.