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FII limit hike to 49% a huge shot in arm for investors

BS Markets Bureau & Reuters

The Union Budget proposal to hike in investment limit in a company under the portfolio investment route by foreign institutional investors (FIIs) to 49 per cent from 40 per cent has brought cheers among the investors.

Finance Minister Yashwant Sinha's proposal has been welcomed by all and the fund managers were glad that the government has displayed openness to increased foreign investment.

While most of them felt that the move is likely to benefit only a handful of companies, they were unanimous that it was a positive step.

"It is a very good move and it shows that the country is open for foreign investment. Many companies are likely to hike their FII limit to 49 per cent in the immediate future," Gul Tekchandani, chief investment officer (CIO), Sun F&C, said.

Aspi Contractor, CIO, Tata Asset Management Company said that the move will help only limited number of companies, especially the companies dealing in software.

"The impact of the raising of foreign investment limit and allowing firms to invest overseas may lead to both inflows and outflows of funds, but the market is looking at the impact as positive for the investment climate as a whole." Ravi Pai, head - forex trading and derivatives, HDFC Bank, said.

Currently, only 12 companies are permitted to have 40 per cent FII limit. These companies are Asea Brown Boveri (ABB), Elbee Services, Global Tele-Systems, Housing Development Finance Corp (HDFC), Infosys Technologies, NIIT, Pentamedia Graphics, Satyam Computer Services, Thiroo Arooran Sugars, UTV Software, VisualSoft Technologies and Silverline Technologies.

"The higher foreign portfolio investment limit is a good move which will help companies such as HDFC and some others in the telecom sector. It will also neutralise the possible lowering of India's weightage in Morgan Stanley Capital International (MSCI) indices," Ved Prakash Chaturvedi, CEO, Cholamandalam Cazenove Asset Management, said.

In a straight reaction, shares of Housing Development and Finance Corporation (HDFC), India's largest housing mortgage lender, jumped by as much as two per cent on Wednesday after the budget announcement that the restriction on foreign investments in Indian companies was raised, dealers said.

After rising to a high of Rs 620, the share had retraced to 616.50 rupees, a gain of 3.95 per cent on the day, by 11:23 (0553 GMT), compared with the 2.07 per cent rise in the 30-share Sensex.

The share was trading at around Rs 608 when the announcement came.

According to the Reserve Bank of India Web site (www.fiilist.rbi.org.in), HDFC is the only company where a 38 per cent FII limit has been reached.

"The stock is also moving up on the news of the savings rate cut which will lower the cost of funds for companies like HDFC," said a dealer at a large domestic brokerage.

Source: Business Standard

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