PSU bank stocks seen losing favour with FIIs

Ashish Rukhaiyar & Gaurav Pai
MUMBAI
March 04, 2009

WITH India’s economic growth expected to cool down further, shares of public sector banks (PSBs) seem to be losing charm with foreign institutional investors. Till some months ago, foreign funds were willing to fork out a hefty premium for a stake in these banks. But not any longer. Over the past few weeks, this premium has narrowed down considerably, and in quite a few cases, shares have changed hands at a discount to the market price.

BSE has a special trading window for companies where the FII investment limit has been reached. Through this segment, foreign investors can buy or sell shares among themselves, without disturbing the overall FII investment limit in the stock.

In mid-January, a leading US-based FII sold nearly 1.25-crore shares of BoB through the special window at Rs 235 when the spot price was Rs 240. A clutch of domestic mutual funds were believed to be buyers in the deal. In other instances, more than 1-crore shares each of OBC and Union Bank were sold in a similar fashion although the quantum of discount varied in both the cases.

Dealers say during the bull run, banking majors like SBI and PNB commanded a premium as high as 20% in this segment over the spot price. Other PSBs such as BoB, Bank of India, Union Bank and OBC were quoted at a premium of 8-12%.

According to an institutional dealer, PNB is currently being traded at a premium of 0.9-1.4% while for BoB, the same is around 1.15-1.46% in the FII window. This gains importance as the premium, at which these shares were traded in the FII window, was one of the most widely-watched indicators of FII sentiment. “There were hardly any sellers and so the premium was very high for stocks like SBI and PNB, but with FIIs strapped for liquidity, the premium has come down drastically,” he added.

Incidentally, the FII holding in SBI has fallen below the trigger limit of 18%, which is the first time in many years. A section of market players attribute the fall to The Children Investment Fund (TCI) — the largest single foreign investor in the Indian banking sector — which has been diluting its stake in many banking majors.