The Hindu Business Line : Bank stocks see rising FII interest

BANK stocks have been among the top performers on the bourses over the past year. Driven by good earnings and a growing economy, the banking sector has seen a significant interest from foreign institutional investors (FIIs).

The RBI Governor, Dr Y.V. Reddy, in a speech at a FICCI seminar earlier this month, made a reference to this. He said, "The interest of FIIs in the Indian banking sector is considerable and it is widely believed that their exposure to this sector is at the top, amounting to about one-sixth of their total exposure to India."

FII holdings in banks as represented by market capitalisation are just a shade under Rs 50,000 crore at the end of September 2005. This marks a significant jump from their holdings as measured by market capitalisation of a little over Rs 20,000 crore in March 2004.

Private banks dominate: FII interest is still predominantly centred around private sector banks — especially on ICICI Bank and HDFC Bank. These two banks account for 86 per cent of the FII holdings (in terms of market cap) in private banks.

Among public sector banks, the FII interest is mainly in SBI and PNB. FII holdings in many banks saw a significant increase, even as the holdings of the Indian public dropped.

In mid-sized public sector banks such as Indian Overseas Bank, Vijaya Bank and Andhra Bank, the shifting pattern in shareholding in favour of FIIs has been more visible in the last one and a half years.

Dip in public shareholding: In IOB, FII holdings have increased from 3.39 per cent of the shares in March 2004 to 15.3 per cent in September 2005. In the same period, public shareholding was down from close to 25 per cent to 16 per cent. Similarly in Andhra Bank, FII holding rose to nearly 16 per cent from 6 per cent in March 2004. Correspondingly, the public shareholding dropped to 14.5 per cent from 24.5 per cent. Interestingly, among the foreign investors who have come into Andhra Bank is CALPERS (California Public Employees' Retirement System), the largest public pension fund in the US.

The flip side of the high FII interest is that when the sentiment changes, bank stocks may bear the brunt. Over the past fortnight, there has been a slide of about 7.5 per cent in the value of non-banking stocks. Bank stocks dropped 11 per cent in the same period.

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