Rajesh Abraham

Mumbai, Jan. 8

FOREIGN institutional investors, who have reached the permissible limit in banking stocks, appeared to be tapping alternative bank-specific equity investment schemes.

This is evident in the rising corpus of Banking Index Benchmark Exchange Traded Fund (Bank BeES), a passively managed exchange traded fund tracking the NSE's CNX Banking index.

The corpus of this scheme, managed by Benchmark AMC, increased more than seven times in the last six months to Rs 2,668.39 crore as on December 31, 2005, thanks to the huge inflow of foreign funds into the scheme. The corpus of Bank BeES in June 2005 was just Rs 369.36 crore.

Dealers said foreign funds are buying into the Bank BeES after the FII limit in many of the public sector banks' stocks, including State Bank of India, Punjab National Bank and Oriental Bank of Commerce, almost touched the 20 per cent ceiling, making Bank BeES an attractive alternative investment avenue.

The CNX Banking index rose 35 per cent from June 1, 2005 to January 6 to touch 4627.37 on Friday. The FII holding in SBI stood at 19.83 per cent as on September-end. It stood at about 20 per cent for PNB and 19.96 per cent for Oriental Bank of Commerce.

Exchange Traded Funds are baskets of securities that are traded, like individual stocks, on an exchange. Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day like any stock.

ETFs are different from mutual funds in the sense that ETF units are not sold to the public for cash.

Instead, the asset management company that sponsors the ETF (Fund) takes the shares of companies comprising the index from various categories of investors such as authorised participants, large investors and institutions.

In turn, it issues them a large block of ETF units. Since dividend may have accumulated for the stocks at any point in time, a cash component to that extent is also taken from such investors.

The Bank BeES closed at Rs 485 on the NSE on Friday with 8,240 units changing hands.

Popularity growing:

Mr Rajan Mehta, Executive Director, Benchmark AMC, told

Business Line

that the popularity of ETFs is growing in India.

Foreign funds, he said, have been the main buyers in the Bank BeES ETF for the last 4-5 months.

In fact, the biggest jump in the total assets under management of Bank BeES happened from July to September period last year, when the scheme attracted Rs 1,409 crore.

Asked about the retail participation in ETFs, Mr Mehta said retail investors were also buying into the ETFs, albeit in a small manner.

He pointed out that it took several years for ETFs to attract public interest in the US. (As on June 2002, ETFs have a corpus of $120 billion in the US.)

With many banks' IPO (Bank of Baroda, Andhra Bank and Union Bank) slated to hit the market in the coming weeks, there could be a possibility of the foreign funds' interest waning in the Bank BeES, said an analyst with a local broking firm.

Related Stories:
FII interest perks up in Bank BeEs
Bank stocks see rising FII interest

(This article was published in the Business Line print edition dated January 9, 2006)
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