Why are FPIs selling off FMCG and power stocks in June?

Synopsis

Overseas funds reduced investments in some sectors this June. Fast-moving consumer goods saw the biggest selloff. Power sector also experienced significant outflows. Financial services received substantial inflows. Interest rate cuts by RBI boosted financial sector investments. Geopolitical tensions and trade issues may affect future flows. Chemicals, oil & gas, and capital goods saw some investment.

Mumbai : Fast-moving consumer goods, power, consumer durables, and information technology were the sectors that saw the highest selloff by overseas funds in the first-half of June, according to data from NSDL. The fast-moving consumer goods (FMCG) sector witnessed the highest outflows at ₹3,626 crore, after receiving inflows worth ₹815 crore in May. Between January and May, the sector saw selling worth over ₹14,000 crore.

"Continuing with the trend seen in the first quarter of this calendar year, FMCG companies saw foreign selling and preference for rate-sensitives and beta plays were the few reasons driving this trend," said Sriram Velayudhan, senior vice president, IIFL Capital. "Foreign investors are looking for better opportunities across sectors."

Foreign investors extended their selling in the power sector, offloading shares worth ₹3,120 crore in the first 15 days of June, after selling ₹2,494 crore last month. The sector has seen outflows worth over ₹9,000 crore between January and May.

"Power companies had run up in the recent past, but the valuations are rich and not sustainable," said Siddarth Bhamre, head of institutional research at Asit C Mehta Intermediates.

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Foreign Buying

These investors allocated ₹9,674 crore across 10 sectors in the first-half of June, with financial services receiving the highest inflows-₹4,685 crore during the period-after witnessing a similar amount of inflows in May.

Between January and May, the sector, with the highest foreign investor holding, saw ₹4,771 crore worth of foreign investment.

Velayudhan said that the interest rate and Cash Reserve Ratio (CRR) cut by the RBI has prompted inflows into the financial services sector.

Beyond banking and financial services, their purchases in most of the other sectors were relatively modest.

"While it is tough to predict further flows, foreign investors are likely to be nimble-footed, so no major flows are likely amid the geopolitical tensions in the Middle East and the trade situation between US and China," said Bhamre.

Chemicals, oil & gas, and capital goods were among the other sectors that received flows in the first- half of June.

Bhamre said that the premium attached to the Trump tariffs is expected to come off given the back and forth on tariffs by Trump.

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