Reserve Bank lifts ban on fresh FII purchases in SBI, HDFC shares
Our Banking Bureau
MUMBAI, January 17: The Reserve Bank of India on Saturday removed the ban on fresh foreign institutional purchases in the shares of State Bank of India (SBI) and Housing Development and Finance Company Ltd (HDFC). In an immediate reaction, the SBI share price shot up in the Saturday kerb market to Rs 252-53 from yesterday's kerb levels of Rs 242-43, while punters are waiting for Monday's market opening in HDFC as there is no kerb market in the scrip. With the lifting of the ban on FII purchase, foreign funds get a chance to buy SBI shares from the market after a gap of more than one year since October, 1996, when Reserve Bank clamped down the ban."But for the Reserve Bank's tight money policy announced on Friday, SBI price would have shot up in the market. "People are a little worried about taking position in the scrip because the overall market sentiment has been terribly hit by the RBI measures," a trader said. The Reserve Bank has not revealed the extent of fall in foreign holding in these scrips. An
RBI release on Saturday said: "The holding of FIIs/NRIs/OCBs in these institutions (SBI and HDFC) has now come down below 20 per cent and 30 per cent, respectively, due to sale of their shares. "The FII holding in SBI and HDFC has fallen below the 20 and 30 per cent respectively-the maximum foreign portfolio investment, including that of overseas corporate bodies and non-resident Indians, permitted in these scrips. HDFC reached the 30 per cent limit in July 1997, just a week after the Reserve Bank had permitted the company to raise FII investment limit to 30 per cent from 25 per cent. According to reliable sources, the foreign portfolio holding in SBI must have come down below 16 per cent leading to the RBI announcement lifting the restriction. The FII holding had, in fact, fallen to 18.5 per cent as on June 1997, according to the book closure data of the bank for the financial year ended March 31, 1997. Though SBI officials also admitted in private about the dip in FII holding, the RBI had continued toinsist that the FII investment was at 20 per cent. This, according to sources, was because the RBI would have found it practically difficult to monitor FII position if the gap was less than four per cent because of the huge demand for the scrip from the foreign funds which did not have any exposure in SBI at all. In July, RBI had trouble keeping the FII investment in HDFC within the limits as there was a rush by FIIs in purchasing HDFC shares after the limit was increased to 30 per cent from 25 per cent. Many brokers, who had bought for their FII clients, had to sell the shares back in the market as the limit was already reached. Between the time they had made purchase and informed the RBI, the five per cent extra limit was filled up. Such a rush would be avoided this time by RBI making it necessary for FIIs to get the central bank approval before placing a purchase order in the market. This way, RBI will be in a position to know the exact position of the limits, while allowing fresh FII
purchases. Leak in RBI can? The inexplicable spurt in the share price of SBI on Friday and the preceding days has raised suspicion of a leak in the market about the impending RBI announcement on the removal of restriction on new FII purchase in these scrips. On Friday, the SBI share price shot up by Rs 9 to close at Rs 244.5 -- registering 3.86 per cent increase against the 0.49 per cent rise in Sensex on the same day. The share price had moved up steadily from Rs 228.75 on Monday to Rs 244.95 on Friday -- up 7.08 per cent. The Sensex, on the contrary, moved down from 3,395.04 on Monday to 3,382.32 on Friday -- down 0.37 per cent. According to market sources, certain big-time operators were active buyers in the last couple of days even when the FIIs were generally learnt to be sellers in the scrip.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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