Information technology stocks faced the wrath of FII selling as foreign investors pulled out Rs 15,213 crore worth of equities in April—marking the highest sectoral outflows since May 2022. Including April, the sector has booked a second consecutive month of FII outflow. Foreign investors have dumped equities worth Rs 23,664 crore in the IT space in the last two months, according to the data available on NSDL website.
Underwhelming performance in the March quarter and a cautious outlook for the ongoing fiscal, amid tariff tensions, cooled the appetite of foreign investors for the sector. IT companies flagged an expected slowdown in clients’ discretionary spending and broader economic uncertainty as reasons for the muted outlook. Beyond management commentaries, several brokerage houses raised the likelihood of a recession in the US, compounding concerns for the sector.
Alongside the FII sell-off, the Nifty IT index slumped 3% in the month of April. The sectoral index has lost over 4% in the past two months.
It is also worth noting that the selloff in IT counters came at a time when FIIs had embraced Indian equities with open arms, pouring in a net Rs 4,223 crore into the domestic market. Carried by the strong FII support, the 50-stock Nifty 50 index also notched 3.5% gains last month, while it lost 0.5% during the three months of exodus during Jan-Mar. The FII withdrawal during that period had pushed the index close to falling below the 22,000 mark in early March.
Although FIIs posted a net addition in April, flows were uneven throughout the month. During the first half, equities saw a net outflow of Rs 33,927 crore across sectors, primarily due to the April 2 reciprocal tariff announcement by the US. However, this trend reversed in the latter half. A weaker greenback, lower crude oil prices, and optimism around a steady macroeconomic growth in India supported investors’ sentiment. Optimism around a possible India–US trade deal and early signs of some cool-off in tariff tensions further encouraged foreign investors to invest in the Indian equities market.
Other Sectors Caught in the Line of Fire
Apart from the frontline IT space, sectors such as metals and mining, automobiles and auto components, and construction also grappled with foreign capital outflows. For automobiles and auto components, April marked the ninth straight month of negative FII flows. The sector saw Rs 3,207 crore of foreign capital leaving its purse last month, taking the total FII outflow to Rs 42,623 crore over the nine-month period.
This prolonged pullback stems from a muted performance in the passenger vehicle segment and clouds of caution over the urban demand outlook. Consequently, the Nifty Auto index has plummeted 16% over the nine month period.
Another victim was the the metals and mining pack, which saw Rs 3,403 crore withdrawn in April, dragging the Nifty Metals index down 6% since the end of March as tariff uncertainties spooked investors, outweighing any relief due to the recently announced safeguard duty on select imported steel products.
Interestingly, while FIIs have been pulling back in certain sectors, Domestic Institutional Investors (DIIs) have shown strong conviction in Indian equities. In fact, the DII holding in the listed space has now surpassed that of FIIs. According to reports, DIIs held a 17.6% stake in companies listed on the National Stock Exchange, edging out FIIs, who held 17.2% as of March. DIIs invested a net Rs 25,251.79 crore during April, according to the data available on Capitaline.
FIIs Favourites
Meanwhile, the darling of foreign investors, the financial services sector recorded a net inflow of Rs 18,409 crore in April, while telecom saw Rs 4,648 crore in FII investments.
Over the last two months, financial services have attracted Rs 32,683 crore in FPI inflows. Consequently, the Nifty Bank index has gained nearly 7% in April and 14% in these two months. Expectations of strong quarterly performance and improving asset quality likely bolstered investor confidence. Inflows in the sector helped trim net outflow figure for April.
Telecom stocks also appeared attractive, supported by recent price hikes that improved ARPU (average revenue per user) and expectations of further price hikes.
