FPIs go big on capital goods, consumer discretionary firms

The capital goods sector saw the largest increase in weightage among major sectors, contributing 131 basis points to reach 5.71%. The auto sector’s portfolio weight rose by 115 bps to 7.85% by mid-July. Institutional investors are mainly focused on the telecommunications sector, which gained 90 bps year to date, reaching 3.59% of FPI equity portfolios as of July 15, surpassing its benchmark weight in the MSCI India index. According to the MSCI fact sheet, the telecom sector constituted 3.54% of MSCI India index as of June.

Consumer discretionary and industrials (capital goods) accounted for 13.09% and 9.93%, respectively, in the index. In the MSCI India index, Larsen & Toubro, and Mahindra & Mahindra hold the highest weights in the industrial and consumer discretionary sectors, at 1.98% and 2.21%, respectively.

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The combined weightage of auto, telecom, and capital goods in FPI allocations rose by 334 bps to a cumulative 17.15% since the beginning of the year, as per NSDL data. These sectors collectively attracted $6.7 billion (₹56,421 crore) in foreign investment, helping to offset outflows from financial services, FMCG, and energy sectors, which recorded total outflows of $7.7 billion (₹64,495 crore) year-to-date.

Disproportionate interest in consumer discretionary, capital goods, and telecom sectors is primarily driven by expectations of superior earnings growth compared to the projected growth of the Nifty 50 index. Earnings growth in the auto, capital goods, and telecom sectors is anticipated at 15%, 29%, and 102%, respectively, for this fiscal, contrasting with a projected Nifty 50 growth of 10%. Despite moderated volumes in the auto sector in Q1 FY25, companies are demonstrating stable operating margins, as exemplified by Bajaj Auto, which expanded its operating margin despite increasing share of low-margin electric vehicle business, through dynamic profit and loss management.