REITs withdraw 50,000 cr from the banking / financial sector

Foreign cash outflows from the banking and financial services sector topped 50,000 crore in the first three quarters of the current fiscal year amid rich valuations of sector stocks and concerns about credit growth due to the news. variant of the coronavirus.

The latest data from custodians shows that foreign portfolio investors (REITs) withdrew 50,892 crore from the banking and financial services industry between April and December 2021. Of the total outflows, 81% or 41,249 crore came from equities while the remaining 9,743 crore was taken out of debt. Within equities, the banking sector suffered the bulk of the REIT’s cash outflows with a net outflow of 34,406 crore, while the other financials sector lost 6,842 crore in the first nine months of the year. current exercise. “The Indian financial sector, especially the stocks of private sector banks, has been performing very well over the past decade. REITs, which traditionally have high exposure to the BFSI sector, have sold bank stocks as a risk adjustment measure and to reduce their exposure to the overweighted banking sector over the medium term, ”said Kranthi Bathini, director of equity strategy at WealthMills. Securities.

“Strained valuations”

REIT flows have a significant influence on the performance of banking stocks given their highest allocation to the financial services sector. Almost a third of REIT assets under custody (AUC) are concentrated in banks and financial sector stocks.

In a recent analysis, Motilal Oswal Securities found that the Nifty Bank Index tends to underperform the Nifty benchmark during months when there are strong sales by foreign investors.

According to the study, the Nifty Bank Index underperformed the Nifty Index seven out of ten months, when REIT outflows were highest.

Ajit Mishra, vice president of research, Religare Broking, said REITs have pulled money from Indian stocks due to strained valuations and cash outflows are widespread, including the banking sector.

“The sector’s underperformance due to concerns about credit growth and asset quality may also have prompted them to pull out,” Mishra said, adding: “Concerns about disruption caused by COVID are far from over. be completed and the recent increase in COVID cases has led to new restrictions that may still impact businesses to some extent. All of these factors would remain on their radar for future positioning.

Uncertainty, credit risk

On the debt side, REITs took 9,743 crore out of the entire financial services industry. Of the total outflows, ₹ 1,714 crore came from the banking sector while the NBFC sector recorded an outflow of ₹ 8,029 crore.

“We believe that uncertainty about the economic recovery, fears of inflation and the tightening of monetary policy are major factors.

“Additionally, we believe that credit risk could also be the reason in some cases,” Religare’s Mishra said.

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