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Thumbs up to FII limit hike, few firms to benefit

BS Markets Bureau

The proposal in the Union Budget to hike the foreign institutional investment (FII) limit in a company from 40 per cent to 49 per cent via portfolio investment route has been widely acclaimed by the investor community.

Fund managers were glad that the government has displayed openness in increasing foreign investment. Though most of them felt that the move is likely to benefit only a handful of companies, they were unanimous in hailing it 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, Sun F&C Mutual Fund, said.

The move, if linked to the American depositary receipts/ global depositary receipts (ADRs/ GDRs) two-way fungibility, will provide arbitrage opportunity, industry analysts said.

"It has been an established fact that certain ADRs/ GDRs rule at a premium over the Indian markets, and few were able to take the advantage. However, the permission to convert domestic shares into ADRs/ GDRs will provide the FIIs and domestic investors a much bigger opportunity to avail the arbitrage within the overall foreign portfolio investment limit, which also has been increased," Asit Koticha, managing director, ASK-Raymond James, said.

However, some also expressed scepticism about the number of companies which may resort to FII hike. Krishnanmurthy Vijayan, chief executive officer, JM Capital Management, said: "It remains to be seen how many companies will really increase the foreign portfolio investment limit."

Aspi Contractor, CIO, Tata AMC, said the move will help only limited number of companies, especially those in the software sector.

"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 consider it a positive step 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. These firms are Asea Brown Boveri (ABB), Elbee Services, Global Tele-Systems, Housing Development Finance Corporation (HDFC), Infosys Technologies, NIIT, Pentamedia Graphics, Satyam Computer Services, Thiru Arooran Sugars, UTV Software, Visual Soft 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, chief executive officer, Cholamandalam Cazenove Asset Management said.

Source: Business Standard

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