Foreign investors intensify selling in Indian auto stocks amid valuation concerns

The second half of February witnessed a significant outflow of foreign investments from Indian equities, with the automobile sector emerging as the most impacted. Data from NSDL reveals that overseas investors divested Rs 20,564 crore across 18 sectors between February 16 and 28. The auto sector alone accounted for Rs 3,279 crore of these outflows, a steep increase from Rs 690 crore sold in the first half of the month. In 2024, foreign investors had already pulled out over Rs 16,000 crore from the sector.

Auto sector hit by valuation worries and external risks

The persistent selling pressure on auto stocks is largely attributed to concerns over valuation, as well as external trade uncertainties. Rising tariffs imposed by the US are expected to impact auto exports, leading to apprehensions among global investors. Additionally, the sharp rally in auto stocks last year has resulted in elevated valuations, prompting profit-booking by foreign investors.

Healthcare and FMCG sectors face sustained selling

Apart from the auto sector, foreign investors also offloaded substantial holdings in the healthcare and fast-moving consumer goods (FMCG) sectors. The healthcare sector saw an outflow of Rs 2,996 crore, while FMCG stocks witnessed foreign selling worth Rs 2,568 crore. The sell-off in healthcare was largely due to concerns over US tariffs, given the sector's substantial exposure to international markets. Meanwhile, the FMCG sector struggled with weak demand and expensive stock valuations, leading to continued investor exits.

Financial services sector sees relief amid slowing outflows

Despite being the hardest-hit sector in terms of foreign selling earlier this year, the financial services segment saw a slower pace of outflows in the latter half of February. Overseas investors sold Rs 1,647 crore worth of financial stocks, a marked decline compared to the Rs 24,949 crore sold in January. Supportive measures from the Reserve Bank of India (RBI) to enhance liquidity have provided some stability to the sector, preventing deeper losses.

Telecom emerges as the biggest gainer

While multiple sectors faced foreign outflows, telecom emerged as the biggest beneficiary, attracting Rs 5,661 crore in fresh foreign investments. This inflow was largely driven by a major block deal involving Bharti Airtel, where Promoter Group Indian Continent Investment Limited sold shares worth Rs 8,485 crore. Other sectors that received positive foreign investments included IT and select consumer segments, which saw net purchases of Rs 1,362 crore and Rs 112 crore, respectively.

Market outlook remains uncertain despite selective inflows

Looking ahead, market volatility continues to dictate foreign investment trends. While easing US dollar strength and potential clarity on trade tariffs could boost investor sentiment, uncertainties at the macroeconomic level persist. Emerging markets, including India, remain under scrutiny, with global investors closely monitoring currency movements and crude oil prices before making further allocation decisions.