FIIs trimmed defensive stocks, bet on unlock schemes in May

FIIs started buying stocks expected to benefit from a reopening of the regional lockdowns while defensive sectors saw an outflow in the month.

The four sectors that saw the most outflow in May were information technology or IT ($415 million), insurance ($372 million), telecom ($237 million) and oil and gas ($230 million), as per National Securities Depository Ltd data analysed by Edelweiss Securities Ltd.

Sectors that attracted FII flows in the month were banks and finance ($666 million), metals and mining ($160 million), power ($ 124 million), auto ($99 million) and logistics ($64 million). However, in April, banking and financial, oil and gas, and metals and mining stocks were sold most by FIIs.

“The famous adage ‘sell in May and go away’ got overruled as the strong recoup in the second half of the month led Nifty hitting highs, gaining 6.5%,” said Abhilash Pagaria, analyst, Edelweiss Securities. “When we look at the May’s price action from a binary lens, then it is evident that a drop in daily caseload of virus cases with an improvement in recovery rates and pick up in pace of vaccination is bolstering investors sentiment about an economic recovery faster than anticipated earlier,” he added.

Along with improving economic prospects the second half of May was also supported by MSCI-rejig led inflows to the tune of approximately $250 million, according to Pagaria’s estimates. In May, MSCI made adjustment in its global standard indices as part of its semi-annual review. Six Indian stocks were added, and one was removed from the MSCI Global Standard Index, while there are slight weight reductions in a few heavyweight stocks in other indices.

In May, FIIs were net buyers of Indian shares worth $748.91 million after selling $1.48 billion in the previous month. However, in the first half of May, FIIs were net sellers worth $965.94 million, which was reversed in the second half when they pumped in $1.71 billion. In the second half FIIs mainly added bank and financial stocks to the tune of $924 million compared to a net sale of $260 million in first half of May, said Pagaria.

“There is a sudden turnaround in FII strategy during the last two weeks. Starting early April till mid-May, FPIs (foreign portfolio investors) were consistent sellers in India. Perhaps the second wave of covid-19, the consequent widespread restrictions on economic activity and its potential impact on growth and corporate earnings unnerved them,” said V.K. Vijayakumar, chief investment strategist at Geojit Financial Services.

“They moved money to other emerging markets. But the sheer momentum in Indian markets has forced FPIs to change their strategy. They have turned strong buyers now. Globally, stock markets are unusually stable and resilient. This trend is likely to change when there are indications of change in the ultra-loose monetary policy of the US Federal Reserve. When the GDP growth and job generation in the US become strong or inflation rises more than expected, the US Fed will start talking of tapering their bond buying programme. This is likely to trigger selling in stock markets globally. This will trigger capital outflows from emerging markets too,” he added.

Meanwhile, domestic institutional investors remained buyers of shares in May. They invested ₹2,067.23 crore in shares in May after pumping ₹11,088.62 crore in April.