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Overseas investors are finding opportunities in India despite record outflows from local shares last month, signaling potential in specific sectors.
Industrials, health-care and telecommunication stocks have drawn net inflows of about $3 billion each this year through Nov. 15, according to data from the National Securities Depository Ltd. That’s in contrast to overall withdrawals of over $2 billion in the period, following an unprecedented wave of selling in October.
Global funds have piled into sectors with strong growth potential, while pulling back exposure to sectors like banks, consumer and energy — the stragglers of 2024 — as the momentum that drove the broader market to a life-time high in September has been dented by slowing earnings growth and a surge in share supply.
“Overseas investors are waking up to the fact that they own yesterday’s winners,” said Ritesh Jain, founder of Pinetree Macro Pvt., a global asset manager. It’s clear that the government’s focus is more on an investment-led growth and less of consumption, he said.
Prime Minister Narendra Modi’s efforts to boost manufacturing have brightened the outlook for infrastructure firms, while telecom firms are benefiting from an increase in prices as intense competition for subscribers cools.
Software exporters’ shares snagged the most inflows in the first half of the month, latest data show. Donald Trump’s victory has strengthened the investment case for the sector amid hopes that likely tax cuts in the US may drive demand for IT services. A gauge tracking these stocks has gained over 6% in November, bucking the weak market sentiment.
In comparison, financial stocks have seen outflows of over $8 billion this year amid narrowing margins and concerns about asset quality. Consumption-related stocks are struggling with sluggish urban demand, while energy shares have been under pressure due to weak refining margins.
“The financial sector dominates foreign investors’ holdings, accounting for nearly 30% of their $850 billion in assets,” according to Bloomberg Intelligence analyst Nitin Chanduka. “The sector’s high weight means foreign outflows from it could mask inflows into other areas,” he wrote in a note.
This divergence is prompting global funds to focus on emerging winners. The benchmark NSE Nifty 50 Index entered correction zone earlier this month after falling over 10% from its September peak. Shares of some lenders and automakers featured among worst performers in the gauge during the period, while Tech Mahindra Ltd. and Wipro Ltd. were top gainers.
“Banking has been over-owned and IT stocks are under-owned — we are seeing a sectoral churn play out now, and it’s likely to continue,” said Manish Jain, director of institutional business division at Mirae Asset Capital Markets Pvt.
Foreigners are assessing which sectors will likely be resilient to the ongoing cyclical slowdown in India, Jain said. Investors are also watching how Trump’s trade policies will impact various segments of the economy, he added.
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