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Foreign money floods into Indian banks and financial institutions this year

32% of net foreign inflows in the Indian equity markets went to banks and the financial sector this year. This should have a net positive impact on your wealth.

What’s the news?

Latest net FPI data shows that Financials dominated FPI Flows between April and December 2020.

What does this mean?

India is the only emerging market which has received positive net inflow of Foreign Portfolio Investment (FPI) into Indian Equities this financial year which pushed the Sensex and Nifty to record highs. The reasons for this development include excess liquidity due to stimulus packages given across the globe.

The improvement in the Indian economic scenario post-COVID-19 and better than expected Q2 results also contributed to strong capital inflows. 

The Indian Equity market has received a positive net inflow of 1.98 lakh Cr between April 1st and Dec 15th 2020. Of this, nearly 32 %, or Rs 62,658 Cr, went to the financial services sector. While banks received Rs 47,248 Cr, the balance went to ‘other financial services’ that include Financial Institutions, NBFCs, Housing Finance Companies and Asset Management Companies.

The lower non-performing assets due to the RBI’s moratorium and one-time loan restructuring made the sector more attractive to foreign investors. This massive FPI inflow also pushed the valuation of many banks and NBFC stocks to their lifetime highs.

The Nifty Bank index outperformed even the Benchmark Nifty50 between March 24 and December 28. Although both private and public sector bank stocks have rallied over the last few months, the quantum of FPI flows into individual stocks will be clear only when the shareholding pattern for the third quarter is declared.

How does this affect your wealth?

Scripbox recommended funds have between 15%-42% exposure to the Finance sector. Any improvement in this sector and the economy at large will have a positive impact on the funds that you have invested in.

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