Why Are FIIs Selling Financials, FMCG Stocks? Check Reason For Sell-Off, Latest Market Data

Last Updated:February 21, 2025, 12:59 IST

FII Exodus Continues: Between February 1 and 15, overseas investors sold Indian equities worth Rs 26,610 crore

FIIs sell more of index-heavy Financial Services, FMCG in February

FII Exodus Continues: Between February 1 and 15, overseas investors sold Indian equities worth Rs 26,610 crore across 16 sectors, according to NSDL data.

The financial sector has borne the brunt of the foreign selling, with investors pulling out Rs 5,344 crore in the first half of February alone, following Rs 25,000 crore in sales during January. In 2024, foreign investors withdrew Rs 58,280 crore from the sector.

Banks and lenders, given their significant weight in the Sensex and Nifty indices, have been particularly affected. As foreign investors trim their portfolios, they tend to sell off large quantities of bank shares. Additionally, concerns over the growing number of non-performing loans (NPLs) are dampening market sentiment.

Siddarth Bhamre, Head of Institutional Research at Asit C Mehta Intermediates, noted, “Delinquencies in personal loans and credit cards are likely to rise in the banking sector, and credit off-take is expected to fall, which is negative for the sector in the coming quarters.”

In the FMCG sector, foreign investors sold Rs 4,336 crore in February after exiting Rs 5,400 crore in January. In the capital goods sector, they offloaded Rs 3,200 crore, following Rs 5,600 crore in January.

Ajay Thakur, Research Analyst at Anand Rathi Institutional Equities, explained that the exit from FMCG stocks is due to high FII ownership and the sector’s muted performance in FY25. “With expectations of only 5% growth in revenue and earnings, compared to earlier double-digit expectations, slower growth and rich valuations led to the correction and FII selling pressure.”

Pankaj Pandey, Head of Retail Research at ICICI Securities, added that the lower-than-expected capex budget allocation and high valuations contributed to the sell-off in capital goods stocks.

Despite valuations cooling, Pandey expects FMCG growth to remain in the mid-single digits, and the sector is likely to underperform the benchmark Nifty.

Other sectors also saw significant outflows in the first two weeks of February. FIIs withdrew Rs 2,400 crore from oil & gas, Rs 2,260 crore from consumer services, and Rs 2,024 crore from construction materials. The construction, power, and consumer durables sectors faced sell-offs worth Rs 1,886 crore, Rs 1,852 crore, and Rs 1,050 crore, respectively.

However, there were inflows in certain sectors. The telecommunications sector saw inflows of Rs 2,337 crore, while the healthcare and IT sectors attracted Rs 1,534 crore and Rs 693 crore, respectively.

Bhamre commented, “The inflows into sectors like telecom, healthcare, and IT are likely due to their defensive nature. With the dollar appreciating, investors are more inclined to invest in IT.”

Although the pace of selling seems to have slowed, analysts caution that it is difficult to predict whether a definitive bottom has been reached. Further foreign selling will depend on the trajectory of trade tariffs and other global developments. Pandey added, “The intensity of the sell-off is expected to ease as foreign investors primarily target large-cap stocks, which are fairly valued despite not being particularly attractive.”

While market participants hope for a return of foreign institutional investors (FIIs), some global analysts remain cautious. A recent Morgan Stanley report suggested that India’s underperformance could reverse in the coming months, but it may not necessarily be driven by FII inflows.

The report pointed out that global funds’ ownership of Indian equities has dropped to multi-year lows, while domestic investments remain strong, supported by rising household equity allocations. Morgan Stanley emphasized that liquidity, rather than flows, will be the key driver of stock prices, with market movements relying more on confidence in economic growth and macroeconomic stability than on foreign fund inflows.

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