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G. Madhan

BANKING stocks appear to have been the favourites among Foreign Institutional Investors (FIIs) during the April-June quarter, this year. FIIs have bought major bank stocks including Union Bank, Canara Bank, Punjab National Bank, Vysya Bank and J&K Bank. This is revealed by an analysis of the shareholding pattern of 30 banking stocks for the quarter ending June 2003 vis-à-vis the quarter ending March 2003.

As many as 12 banks, including PSBs and Private Banks, have witnessed rise in the FII holdings. State-owned Union Bank saw its FII holdings increase from 3.9 per cent in the March to 13 per cent in June.

FII holdings in the privately held Vysya Bank also rose from 4.5 per cent to 11 per cent. Other banks that registered sharp increase in the FII holdings include Oriental Bank of Commerce, IndusInd Bank, Bank of Baroda, HDFC Bank and ICICI Bank (see table).

All these stocks have gained ground since January on the back of upward revision in their valuations. The stock price of Oriental Bank of Commerce grew over 2 folds (Rs 50.1 to Rs 171.55), while Union Bank (Rs 19.3 to Rs 41.20), Canara Bank (Rs 49.45 to Rs 109.20), J&K Bank (Rs 97.30 to Rs 211.25) and Punjab National Bank (Rs 65.15 to Rs 152.90) registered over one fold growth in their stock prices. The appreciation in the stock prices is higher since April 2003.

The FII interest in these stocks is due to both Industry specific and company specific factors. The strong fundamentals registered by these banks driven by the growth in the treasury income appear to have induced FIIs to these stocks. While the top line of several banks has posted a modest growth their bottom line has also improved on the back of lower cost of funds.

The Securitisation Act (which has given more teeth to the banks to recover dues) and the attractive dividend declared by banks also appear to have aided the buying interest in these stocks.

FIIs' increase in holdings may also be on the back of strong growth in manufacturing and core sectors, which in turn may have a positive impact on the banking sector growth.

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