In Dalal Street’s record-breaking rally in 2023, FIIs stuck to their favourite financials, dumped IT stocks, and were consistently wooed by the old-world charm of capital goods.
Out of the Rs 145,852 crore spent by FIIs in 2023 (till 15 December), roughly 30% of the inflow (Rs 41,260 crore) went to capital goods. Barring a small selling of just Rs 86 crore in the sector in January, FIIs have been net buyers in capital goods stocks for all the remaining 11 months of the calendar year.
The highest buying of Rs 43,911 crore was seen in financials. The average weight of FIIs in financials is 33.1% while that in capital goods is 5.1%.
FIIs have been consistently overweight this year in financials (+5.3%), consumer durables (+2%) and consumer services sectors (+1.2%), while they have been consistently underweight in software & services (-2.72%), FMCG (-2%) and energy sector (-1.95%), data from Emkay Global showed.
With investors seeing growth and margin risks for software exporters amid fears of a shallow recession, FIIs dumped IT stocks worth about Rs 10,600 crore in the year.
The third highest buying was seen in auto stocks at Rs 28,746 crore, followed by consumer services (Rs 16,884 crore) and healthcare (Rs 11,900 crore).
Interestingly, the highest sell-off was also in the old economy sector of oil, gas, and consumable fuels at Rs 26,637 crore. Media, metals, and chemical stocks were also on the sell list.
Should you follow the FII?
In the last one year, the BSE Capital Goods index has rallied nearly 60% against Sensex’s 16% rise.
With capex being incurred and capital markets willing to fund good quality growth stories for their expansion, analysts see more potential in capex plays.
“The recent upturn in corporate spending & housing cycle have 5 years to go; and at 85% of capex, are its major drivers. Any potential
dip in capex plays on declining confidence in government capex would then especially be a buying opportunity. L&T, SBI, Lodha, God Prop, Ultratech, Thermax, Polycab, KEI, Kajaria, JSW Energy, and Coal India are the preferred capex cycle plays,” said Mahesh Nandurkar of Jefferies.
Siddhartha Bhaiya’s Aequitas Investment India Opportunities Fund has a heavy bias towards capital goods as a sector with over 40% weightage. His PMS fund is the best performing one in the last one year with an impressive return of 87%.
“The capital goods sector had been an ignored sector of the last decade wherein there was hardly any capacity addition and a lot of inefficient players went out of business. With this background, we believe that the capital goods sector could continue to maintain momentum in 2024,” Bhaiya said.
Within the capital goods space, market veteran Sanjiv Bhasin suggests a basket of ABB, Siemens, Cummins. “You can add a Thermax and a Bharat Forge and you have the complete basket of capex stocks,” he says.
(Data inputs: Ritesh Presswala)
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
