Foreign investors pull out ₹14,422cr from IT stocks
What's the story
Foreign investors have pulled out a whopping ₹14,422 crore from Information Technology (IT) stocks in the second half of July. The massive sell-off comes after a withdrawal of over ₹5,000 crore from the sector in the first fortnight of the month. Between January and June this year, foreign outflows from IT stocks totaled ₹30,600 crore.
Market analysis
Foreign investors trimming exposure
Analysts have attributed the pressure on the IT sector to weak June-quarter numbers and significant headcount reductions. UR Bhat, co-founder & director at Alphaniti, said "the valuations in the sector have not yet fully factored these headwinds in addition to global macro-economic uncertainty." He added foreign investors are trimming their exposure as IT is one of the sectors with maximum weightage for them.
Index performance
Nifty IT index has fallen 11.8% in last month
The Nifty IT Index has underperformed the benchmark Nifty, falling 11.8% in the last month compared to a 4.5% drop in the latter. Foreign investors sold shares worth ₹34,974 crore across 12 sectors in the last fortnight of July, NSDL data showed. This included a sale of ₹6,720 crore in financial services after an earlier purchase of ₹8,946 crore in June.
Sectoral impact
Banks exposed to export-oriented sectors may face rising NPAs
Bhat has warned that banks with high exposure to export-oriented sectors like chemicals, textiles, gems and jewelry, and auto parts could see a rise in NPAs due to tariffs. He said, "overseas investors are likely to be selective on the scrips that they buy." The oil and gas and realty sectors witnessed foreign outflows of ₹4,177 crore and ₹3,684 crore, respectively, in July's second half.
Market sentiment
Profit booking in Reliance Industries has affected market sentiment
Profit booking in Reliance Industries, the top stock in the Oil & Gas Index, has affected market sentiment. Bhat said, "The global implications are significant on the oil markets if India stops buying crude oil from Russia, and the uncertainty is weighing heavily on the outlook for these stock,s leading to outflows." Foreign investors offloaded ₹2,425 crore worth of automobiles in July's second half.