Service sector

REITs are becoming net buyers in the financial services sector

After nine months of strong selling in banking and financial services stocks, foreign investors have become net buyers in the sector over the past two months.

According to the latest NSDL data, Foreign Portfolio Investors (REITs) injected a net investment of ₹1,014 crore into the “financial services” sector in July, followed by ₹12,799 crore in August.

REITs were net sellers in the financial sector every month between October 2021 and June 2022, collectively taking out ₹1.09 crore. Previously, foreign investors made a net investment of ₹1,428 crore in the sector as of September 2021.

“The fundamentals of the banking sector have improved lately. Banking system credit growth was 15.8% in August, compared to 9.7% in March 2022. It should be noted that growth is widespread in medium and small businesses, retail trade and services. This indicates that the economy as a whole is doing well,” said Sanjay Chawla, Chief Investment Officer – Equities, Baroda BNP Paribas Mutual Fund.

“Indian banks are well endowed with stressed assets and the loan portfolio appears to be clean compared to the previous cycle. During the Covid-19 pandemic, most private banks have also raised capital and are well capitalized. asset-liability management (ALM), banks are also well positioned,” Chawla added.

Massive release

Also across the market, REITs were net sellers between October 2021 and June 2022, seeing a massive outflow of ₹2.46-lakh crore during this period. Foreign investors became net buyers in July with net investment of ₹4,989 crore and ₹51,204 crore in August, the highest monthly inflow in 20 months.

“In the context of the current slowdown in global growth, India has the best growth and earnings story for this year and next. So REITs are back in India. Finance is among the best growth segments in India. For banks in particular, asset quality has improved significantly and credit growth is now at 14%. There is clear visibility on earnings growth in financial services,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

IT sector

Historically, REITs have been heavyweights in banking and IT. Although they have become net buyers in the banking window, REITs have yet to make a splash in the IT sector. After withdrawing ₹35,583 crore from the sector in April and July, REITs made a net investment of ₹397 crore in August.

“The IT sector has not been the sought-after sector for several months. Many institutional investors believe that the sector’s outlook has been dented by fears of slowing growth/recession in the developed world. There are concerns that the likely recession will negatively impact technology spending by companies in developed markets,” Geojit’s Vijayakumar said.

Chawla of Baroda BNP Paribas Mutual Fund said the IT sector also faces a host of challenges, including labor costs (the largest component of IT business costs), high industry attrition, high wage inflation impacting the margins of IT companies and the depreciation of the rupee against other currencies.

Other sectors that saw significant REIT inflows in July and August include Healthcare (₹8,716 crore), FMCG (₹7,770 crore) and Telecom (₹6,611 crore).

Published on

September 12, 2022