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Friday, September 21, 2001



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FII investment in cos hiked up to sectoral cap

Our Bureau

MUMBAI, Sept. 20

A DAY after the Finance Minister, Mr Yashwant Sinha, assured foreign institutional investors (FIIs) on investor-friendly measures, the Reserve Bank of India today removed one more hurdle in the way of portfolio investments by FIIs.

The RBI announced that investments by FIIs in Indian companies can now be increased beyond 24 per cent of the issued and paid-up capital of the company. FII investment in a company would now be governed by the investment ceiling for foreign direct invest ment (FDI) for specific sectors, RBI said in a statement. However, approval of the shareholders and the board would be necessary for such proposals.

Following the decision, the FII limit in petroleum refining and exploration, airports, trading, roads, highways, ports, hotels and tourism, film industry and mass rapid transport system would be 100 per cent.

FII investment limit for civil aviation will continue to be 40 per cent. For private sector banking, telecommunication and broadcasting, it would remain at 49 per cent.

Currently, FII investment up to 24 per cent is automatic and it can be raised up to 49 per cent subject to approval of the company's board and shareholders.

Going by the latest hike, FIIs can now buy up to 100 per cent of capital subject to sector-specific statutory ceilings as are given in the guidelines for FDI.

The RBI move, intended to bring parity between FDI and portfolio investments by FIIs, is however unlikely to lead to a scramble for Indian equities, analysts said. Further, approval of the hike by shareholders would be time-consuming.

Also, FIIs may want to invest beyond the existing limits only in companies which are perceived to be having best management practices and impeccable track-record and credibility, experts feel.

The hike in limit may lead to increased volatility in share prices as a few large investors concentrate on a large part of the floating stock, independent investment bankers, fund managers and brokers said.

Fund managers and brokers said that the RBI move would remove the anomaly which could have weighed against FII inflows in Indian companies following the recast of the popular Morgan Stanley Capital International Index. The index, likely to be recast arou nd October-end, is likely to take into account the free float of companies for assigning weightage to the companies in the index which is followed by international investors.

Fund managers said that this could be a step in the right direction but, currently, most FIIs are in the selling mode. ``More ground work, such as rationalisation in taxation, needs to be done to attract FIIs to Indian companies,'' said Mr Sanjay Sachdev , CEO, IDBI-Principal Mutual Fund.

Leading investment bankers said that FIIs have not exhausted even the existing limits in various companies.

Companies that have sizable FII holdings include HDFC, Infosys, Reliance Industries, ITC and HLL. Others feel that many promoters may not allow such approvals hiking the limit on FII holdings.

Further, the RBI measure has come at a time when most of the major companies have completed their annual general meetings. To hike the limit, they would need to convene extraordinary meetings, which could be time-consuming.

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