Inter-FIIs trade sees 5-fold increase in 2005

The volume of inter-foreign institutional investors (FIIs) trade, at special counters have grown five-fold in the calendar year, 2005.

The counters have seen turnover of Rs 25,000 crore till December 19, compared to only Rs 5,000 crore in 2004. The special counter trade is conducted under the six lakh series on the Bombay Stock Exchange and LS series on the National Stock Exchange.

The stocks traded at the special counters always command a premium over the spot prices. The FIIs are willing to pay a premium over the spot prices, if they get the stocks in adequate quantity, as they may not be available on spot markets at one go. The spot market being price sensitive to demand and supply, the FIIs have to pay higher premium on spot market to get the required quantity in case of a demand and supply mismatch.

The premium received for scrip at the special counter may indicate future price trend of that stock. Logically, the willingness of the FIIs to pay a premium over the spot prices, indicates that the entity is bullish on that stock.

For example, the FIIs paid Rs 1,030 per share for buying 1,50,000 shares of State bank of India (SBI) on September 13, while the spot market price of the scrip on that day, hovered around Rs 885 levels. Subsequently, on September 30, the SBI price on the spot market, touched around Rs 950 levels.

The six-lakh series of the BSE and the LS series on the NSE, allows the FIIs to sell or buy scrips among themselves for those companies in which maximum ceiling for the overall FII investment has been attained.

Simply put, when a company hits the FII ceiling, fresh buying by FIIs is capped but one FII can always buy from another FII within the overall limit. The special counters ensure the inter-FII trade.

ICICI Bank tops the special counter trading list, with a turnover of Rs 7,400 crore in 2005, compared with Rs 1,663 crore in 2004. Bharti Tele-Ventures is a close second, with a turnover of Rs 7,217 crore (Rs 30 crore), followed by BHEL Rs 2,312 crore (Rs 658 crore), SBI Rs 2,160 crore (Rs 1,857 crore), Punjab National Bank Rs 1,112 crore (Nil) and Grasim Rs 1,062 crore (Rs 168 crore).

The ceiling of the FIIs at these counters has been exhausted as per the RBI guidelines. Total foreign holding in the ICICI Bank tops at 72.79 per cent, with the FIIs holding at 42.31 per cent, ADR holding of 27.118 per cent and the holding of others at 3.29 per cent. ICICI Bank has reached he maximum permissible foreign holding limit as stipulated by the government.

Hence, no further buying could be allowed, except among the FIIs. Similarly, in Bharti Tele-Ventures, SBI, Punjab National Bank, BHEL, HPCL, Voltas and others, the FIIs have reached the ceiling for buying.

FIIs, Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) are allowed to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, FIIs/NRIs can acquire shares of Indian companies through the stock exchanges in India.

The ceiling for overall investment for FIIs is 24 per cent of the Indian company's paid-up capital, while for NRIs/PIOs, it is 10 per cent. In the case of public sector banks, which includes the SBI, the limit is 20 per cent of the paid-up capital.

The ceiling of 24 per cent for FII investments can be raised up to the sectoral cap/ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect.

In the case of NRIs/PIOs, the ceiling of 10 per cent can be raised to 24 per cent, which too is subject to the approval of the general body of the company passing a resolution to that effect.