Sector Rotation Dynamics: The Impact of FPI Flows on IT and Financial Services in Emerging Markets
In the last three years, IT has been the most underperforming sector, followed by financial services.
The MSCI Emerging Market Index has the highest exposure to these two sectors, through which Foreign Portfolio Investors (FPIs) invest in India via non-dedicated funds.
Since FPI inflows were muted compared to Domestic Institutional Investors (DIIs) over the past three years, these sectors have experienced outflows and, consequently, underperformance.
A weak dollar and strong emerging markets may attract FPI flows into these sectors, potentially leading to sector rotation in the near future.
