Foreign investors buy India's IT, pharma stocks in August on US rate outlook

Foreign investors scooped up information technology and pharma stocks in August, which earn a significant share of their revenue from the US, on the prospect of a likely rate cut this month by the Federal Reserve, according to data on Thursday.

Foreign portfolio investors (FPI) also loaded up on consumer stocks, driven by earnings momentum and hopes of demand revival due to steady monsoons in India, data from the National Securities Depository Ltd (NSDL) showed.

After pumping in Rs 11,763 crore ($1.40 billion) on IT stocks in July, the highest since a new sectoral classification was implemented in 2022, FPIs purchased IT shares worth Rs 4,036 crore last month and also bought healthcare stocks worth Rs 5,199 crore.

Buoyed by FPI inflows, the IT and pharma sub-indexes in August rose 4.7 per cent and 6.6 per cent, respectively, while FMCG index gained 1.6 per cent, leading the benchmark Nifty 50 1.1 per cent higher.

Recent hopes of increased technology-related spending in the US amid expectations of a soft landing for the economy spurred foreign interest in IT and pharma stocks, according to VK Vijayakumar, chief investment strategist, Geojit Financial Services.

Consumer durables, consumer services and fast-moving consumer goods saw FPI inflows between Rs 3,600 crore and Rs 5,000 crore in August.

Bets of rural demand revival and steady macroeconomic outlook triggered renewed interest in consumption-linked sectors, according to two analysts.

"The silver lining is private consumption growth, which is showing signs of revival and reflecting in the strong earnings performance in the sector in June quarter," said Ajit Banerjee, chief investment officer at Shriram Life Insurance.

"Monsoon progressing well also keeps the hope alive of a good agricultural output and could lead to improvement of rural demand," Banerjee added.

Supported by rising expectations of a US rate cut in September, overall FPI inflows in Indian equities turned positive for August, reversing outflows in the first half of the month.