Analysts see sustained FPI inflows, await clarity on tariffs and global rate cuts

Mumbai: The automobile sector witnessed the highest foreign inflows worth ₹5,020 crore in the second half of June, after witnessing outflows worth over ₹15,700 crore between January and May.

"The fall in interest rates and pick up in rural demand has made the auto sector attractive, especially since the valuation has become very comfortable," said Divam Sharma, fund manager, Green Portfolio PMS.

Overseas investors are reallocating their portfolio in line with valuation comfort, said Sharma.

In May, the sector saw marginal inflows worth ₹101 crore. Overseas investors bought shares worth ₹27,920 crore across 11 sectors in the last 15 days of June, according to data from NSDL.

Oil & gas and financials saw foreign investment worth over ₹4,000 crore each in the second half of the month, after witnessing inflows worth ₹1,199 crore and ₹4,685 crore, respectively, in the first half of the month.

Softer crude oil prices and the infusion of liquidity by the RBI through interest rate cuts, respectively, stoked investor sentiment in these sectors.

Global investors infused funds worth ₹3,620 crore in telecommunication and ₹2,879 crore in the Information Technology (IT) sectors in the last 15 days of June. The IT sector has witnessed aggressive foreign selling worth ₹31,766 crore between January and May.

"The impact of tariffs is likely to be limited on services, given the bilateral talks between India and US which supported the inflows into the IT sector," said U R Bhat, co-founder & director, Alphaniti.

Bhat said that the inflationary pressure in the US is not likely to be as pronounced as anticipated earlier which further alleviates stress on business prospects as the US Fed is expected to cut interest rates in the second half of the year.

Foreign investors sold shares worth ₹7,929 crore across 12 sectors in the second half of the month. These investors divested shares worth ₹3,191 crore and ₹3,022 crore in the power and capital goods sector, respectively.

"Early and stronger than expected, monsoon rains lowered electricity consumption, particularly in agriculture and rural areas and foreign capital rotated from power to higher yielding sectors like auto, oil & and gas, and financials that were in strong demand," said Sudeep Shah, SBI Caps. Shah said that while the infra spending remains, concerns over project delays and execution risks have tempered enthusiasm in parts of the capital goods sectors.

"Since capital goods had seen significant gains, FIIs are taking away profits to reallocate to growth sectors."

Agencies

FOREIGN FLOWS OUTLOOK
Analysts expect incremental foreign inflows to persist, with the quantum of flows likely to be moderate to aggressive.

"Further foreign inflows are likely to be determined by the tariff outcomes which seems to be favourable for India so far," said Bhat. "If the negotiations favour India, then robust foreign inflows are expected."

Sharma said that the de-dollarisation trend is expected to continue and induce aggressive foreign inflows into India, given that the negatives are already factored into the prices.

"The outlook remains moderately positive, but inflows are likely to be sector and valuation driven rather than broad based," said Shah. "The quantum may be moderate, but incremental FII inflows are expected in the near term if global rate cuts materialise and domestic earnings deliver."