FPIs Dump Financial Stocks in Jan, But All's Not Bad

The banking and financial services sector, which holds a 34.35% weight in the benchmark Nifty 50, is bearing the brunt of broad-based selling by foreign portfolio investors (FPIs).

- Dipti Sharma

FPIs pulled out a massive $2,882 million from banking and financial stocks in January—the biggest outflow for the sector since they withdrew $3,109 million in October, showed data from National Securities Depository Ltd.

In comparison, FPIs offloaded consumer durables stocks worth $1,403 million and software and services stocks worth $747 million.

In January, when Donald Trump took oath as US president, FPIs offloaded $9,052 million in equity investments compared to their net buying of $1,825 million in December 2024.

FPIs are moving capital from emerging markets in response to changing US policy, the threat of a trade war, and the resulting upside risk to inflation. To be sure, the financial sector always sees a high rotation of money as banks hold significant weight in major Nifty indices.

However, the sector is grappling with a range of issues, including high funding costs, asset quality concerns, and rising credit costs, all while loan growth remains sluggish. On top of it, tight liquidity driven by weak deposit growth, forex operations and emerging stress in unsecured lending has made investors more cautious about the sector.