FII to FII deals done at huge premiums; SBI, ACC hot

Foreign funds have started charging a huge premium when selling their holdings in Indian companies, especially in stocks where the company has exhausted the maximum limit for foreign institutional investor (FII) investments.

With more FIIs wanting to enter such companies, existing FIIs charge a premium to make way for the new hopefuls. The premium on these stocks is as high as 20 per cent over the cash price on the exchanges, and most of the trades are done in blocks on special exclusive platforms provided by the Bombay Stock Exchange and the National Stock Exchange.

The State Bank of India scrip continues to command the highest premium between foreign funds as the FII limit in the bank is capped at 20 per cent. Likewise, the premium on Associated Cement Companies has surged after FII holdings reached the 24 per cent ceiling in the stock.

Piqued at the daily average closing prices, which at times are either hammered lower or jacked up in the last half-hour trading, FIIs are now seeking a separate closing price for themselves to determine their net asset values.

Leading broking sources, who work for FIIs, said that FIIs are planning to seek the market regulator's intervention in the matter. They are moving the Securities and Exchange Board of India to issue directives to stock exchanges to announce separate closing prices for the institutions. The proposal is currently at a nascent stage and is gaining ground among foreign funds.

These institutions are now insisting that the closing prices for institutions should be based on the last trade by these institutions rather than average market price in the last 30 minutes.

Currently, the National Stock Exchange determines the day's closing price taking into account the average price in the last 30 minutes of the session. The Bombay Stock Exchange calculates the closing price based on the average of traded prices in the last 15 minutes of the session.

The argument put forward by these institutions is that the current closing price affects their net asset value and does not give the true picture of the transactions by these institutions. This, in turn, affects the net asset value of their parent international funds.