During the first four months of 2024, foreign institutional investors (FIIs) withdrew nearly Rs 46,000 crore from financial stocks following RBI Governor Shaktikanta Das’ crackdown on listed banks, NBFCs, and fintechs. In January, FIIs offloaded over Rs 30,000 crore in financials, followed by nearly Rs 10,000 crore in February. Although they were net buyers in March, they resumed selling in April, with around Rs 9,300 crore worth of stocks sold.
In the March quarter, FIIs sold 29 crore shares of HDFC Bank, 4.26 crore shares of Kotak Mahindra Bank, and 2.8 crore shares of Axis Bank. Regulatory actions against NBFCs like Bajaj Finance, banks like Kotak Mahindra Bank, Bank of Baroda, Federal Bank, and South Indian Bank, as well as fintechs like Paytm, have raised concerns among investors about the impact on credit growth and cost of capital.
The RBI’s increased focus on compliance and governance has put pressure on the financial sector to enhance practices. While foreign investors are bearish, domestic investors like PMS fund manager Saurabh Mukherjea and DSP Mutual Fund’s Vinit Sambre remain optimistic about the long-term prospects of financial giants. However, the RBI’s draft guidelines on stringent provisioning requirements for lenders could impact loan growth outlook and increase the cost of capital.
In the March quarter results, private banks like Axis Bank, Kotak Bank, and RBL reported healthy earnings growth, while HDFC Bank, Axis Bank, and ICICI Bank showed mixed margin performance. Although the pace of net interest margin compression has slowed down, funding costs are on the rise. Investors are advised to consider expert recommendations and opinions when making investment decisions.