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Concerns on inflation, fiscal deficit and marginal recovery in the overseas markets appear to have led foreign institutional investors (FIIs) to do an intense churning in banking space.
While they have turned away from new private banks, most PSU banks and old private banks remained attractive for FIIs.
Of the 40 listed banking stocks, FIIs reduced stake in 18 and increased in 21 while maintaining status quo in Karnataka Bank.
FIIs sold stakes in five out of the seven new private sector banks, three out of nine old private sector banks and 10 out of 24 PSU banks in December. Only Karnataka Bank saw a status quo in FII shareholding. The remaining 21 banks saw FII stakes going up.
But the stake increases are only marginal, while the decreases are substantial.
Experts said though investors were aware of the fact that a margin squeeze was imminent, asset quality could deteriorate and pension liability could pile up (for PSU banks), they could not do much about it.
The markets were being pushed by strong FII inflows but when crude oil started moving up drastically FIIs started exiting their positions in the third quarter.
“Maximum FII offloading happened in December though the process had already started after Q2 results,” said a banking analyst from a multinational brokerage.
The December inflation numbers had negative surprises and immediately FIIs went about selling bank stocks.”
In the matter of PSU banks that FIIs exited from, the major concerns included mounting pension liabilities and a higher lag in management of assets and liabilities, something their private sector counterparts could do much better.
Old private banks being perennial takeover targets also saw some FII outflows as most of them have only regional operations, with some of them catering mostly to NRIs with low CASA.
Many brokerages had brought out ‘buy' reports on private sector banks during the third quarter when FIIs actually offloaded stakes in eight out of 16 listed private banks.
Capitalising dips
“With prices correcting, it made sense to FIIs to use reduced capital to pick up the same stakes later in the same banks,” said Mr Prakash Diwan, Head-Institutional Equities, Networth Stock broking.
“FIIs know the direction of capital flows ahead of local players and are hence able to capitalise on dips,” said the MNC banking analyst.
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