Indian banks seem to be finding favour with foreign institutional investors (FIIs), who have increased their exposure over the last one year.
Of the top 13 banks in the 1banking index of the Bombay Stock Exchange (BSE), the Bankex, FIIs have increased their stakes in 10 banks. Only three banks — Canara Bank, Bank of India and Yes Bank — saw FIIs decrease their holdings in 2012-13.
“It reflects the need of FIIs for diversification,” said Ananda Bhoumik, senior director, financial institutions at India Ratings & Research, a Fitch group company. “At that point of time they wanted higher returns from other (overseas) economies, so they chose Indian banks.”
Axis Bank witnessed the highest increase during the year as FIIs increased their stake to 40.94% at the end of March 2013, from 32.94% at the end of March 2012.
The big question for Indian banks now is whether the FIIs will stick to their stock, or exit going forward.
“The short-term money, which is restless money, may get out of the country but the long-term money or the patient money will stay in banks,” Bhoumik felt.
Emerging economies such as India have been seeing an outflow of funds as FIIs pulled out in the wake of the US Federal Reserve statement that it is likely to taper off its $85-billion-a-month bond purchases beginning later this year, ending it completely next year if the US economic recovery is up to expectations.
Experts also pointed out that foreign institutional investors have chosen to shift from public sector banks to private ones. “In the last one year FIIs exposure has increased more in private banks compared to public lenders which show that they have shifted their investments from public to private banks,” said Kajal Gandhi, banking analyst, ICICIdirect.com.