FIIs sold over $1 billion worth of Indian stocks in these 6 sectors. Should you rejig portfolio?

With foreign institutional investors or FIIs continuing on a profit-booking spree on Dalal Street, six sectors bore most of the brunt of the selloff last fortnight. While the power sector saw the highest selling of Rs 2,069 crore, telecom was the surprise pick of FIIs in the first two weeks of the month.

Besides power, FII selling was concentrated in construction (Rs 1,579 crore), IT (Rs 1,539 crore), oil and gas (Rs 1,438 crore), financial services (Rs 1,231 crore) and FMCG (Rs 1,183 crore). Altogether the selling in these six sectors contributed over Rs 9,000 crore out of the total Rs 9,784 crore.



After September in which Indian equities worth around Rs 14,768 crore were sold, October is the second consecutive month where FIIs have been on a selling spree amid a sustained rise in US bond yields.

"The Indian market continues to exhibit resilience even in the midst of many challenges and, therefore, there is a growing concern among FPIs that if they continue to sell, they will miss out on the potential rally in the Indian market. This might restrain the FPIs from selling heavily in the coming days. However, if the Israel-Hamas conflict widens and crude shoots up, they might continue to sell. The level of uncertainty is high," said Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Cushioning the downside that FII outflows could have caused, DIIs have continued to be buyers on the back of strong retail flows. Equity SIP inflows hit the Rs 16,000 crore mark in September.

"FII outflows tend to predominantly impact large caps whereas the mid and small caps are currently seeing substantial inflows from retail. This is reflected in the performance of these segments. Mid and small caps have been outperforming the Nifty despite a large single-day correction on the 20th of September," said Roopali Prabhu, Head of Products & Solutions, Sanctum Wealth

However, the Nifty Midcap 100 index is now expensive at P/E multiples of over 25x on a TTM basis as compared to Nifty P/E multiples of 22x. Waning value in midcaps and sustained FII selling could lead to further consolidation in markets, Prabhu said.

In the September quarter earnings season, which kicked off last week, analysts were left worried about margin pressure in banks and the fact that IT companies reduced their revenue guidance.

The other big factor troubling investors is the global macro-fallout of the Israel-Hamas war, rising bond yields, crude oil prices and the dollar index.

Global brokerage firm Bernstein said it remains overweight on financials but has now allocated a small part of the weight to utilities. "We maintain an overweight on consumer tech with an overall IT sector with a modest OW position and remain OW on building materials. We remain UW on staples, EW on Autos, and overall discretionary, and UW on Metals. Our current view on broad markets is to buy the corrections that will happen given the quick run-up from April. We see limited large downside risk due to supportive macro, resilient earnings growth and lower risk in the broader corporate ecosystem," Venugopal Garre said.

(Data inputs: Ritesh Presswala)

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