If the recent data is anything to go by, then banking has been the only space that has offered foreign institutional investors (FIIs) a decent opportunity to make a profitable exit on their investments. The last couple of months has seen a slew of block deals in which high-profile FIIs have exited banking majors.
According to data available with the stock exchanges, the current calendar year has seen notable block deals in the banking counters, such as ICICI Bank, Kotak Mahindra Bank, Axis Bank, Federal Bank, Yes Bank and Dena Bank.
Experts attribute this trend to a combination of factors, including notable return on investment, appetite by other institutional investors and also concerns related to asset quality and a bleak market outlook.
?Majority of institutions selling their stake are private equity or original investors, who are looking at opportunities in getting the best returns on their equity in an otherwise dull macro-economic situation. Around 60-70% of the deals have happened among foreign institutions,? said Rikesh Parikh, vice president, equities, Motilal Oswal.
Parikh said that asset quality remains a concern on the fundamental side. In addition, investors are probably getting into the ‘risk-off’ mode, given the lack of action on fiscal and monetary measures.
Last week, HSBC ? through its Mauritius entity, HSBC IRIS Investments Mauritius ? sold its 5% stake in Federal Bank. HSBC earlier exited Axis Bank and Yes Bank (both in June end). Reports also suggest that the global banking major is likely to exit Karnataka Bank by selling its 4.5% stake.
Apart from banks, some of the financial services firms, such as LIC Housing Finance, HDFC, IFCI and M&M Financial, have also witnessed a number of block deals.
Incidentally, institutional dealers across brokerages say that talks of a large ?block? of bank shares held by an FII looking to exit is quite common in the market. They say there is enough appetite for banking shares by a large number of FIIs and even domestic institutions and, hence, any such ?block?, if offered at an attractive price, gets executed.
Data also clearly show that many of the stake sale activity is happening within the FII circles. Block deals in Kotak Mahindra Bank, South Indian Bank, Yes Bank and Federal Bank saw a significant chunk being bought by foreign investors. Experts, however, caution that there is a growing concern over banks’ asset quality and ‘risk-off’ stance due to the prevailing macro-economic conditions.
?At a time when the global economy is in doldrums and the Indian economic activity is slowing down, institutions have no choice but to exit the market. Some of the institutions have run out of patience because of a lack of choice on getting handsome returns amid increasing NPAs and RBI’s stance against cutting interest rates,? said an official with IDBI Capital Market.
Last week, rating agency Crisil stated that loan restructuring could reach R3.25 lakh crore by end of the current financial year.