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Asset quality concerns: FIIs trim holdings in bank stocks

FIIs have reduced their holdings in banks and NBFCs for the quarter ended September.

Foreign institutional investors (FIIs) have reduced their holdings in banks and non-banking financial companies (NBFCs) for the quarter ended September, sparking a correction in the stock prices of some of these firms.

Data show that FIIs have reduced their holding in nine out of 10 banks and four out of seven NBFCs in the three months to September. HDFC Bank and Indusind Bank saw their FII holdings reduce by 0.8% and 2.38%, respectively, while Kotak Mahindra Bank Ltd’s FII share went down by about a percentage point. Shares of HDFC Bank, IndusInd Bank and Kotak Mahindra Bank have fallen 11.19%, 18.06% and 5.07%, respectively, during this period.

Bank stocks have underperformed in the second quarter of FY14 with the BSE Bankex declining more than 17% compared to a marginal 0.63% gain in the BSE benchmark index Sensex during this period.

Within the broader BSE 500 universe, Karnataka Bank has seen the sharpest fall in FII holding in September quarter as overseas investors have reduced their stake by 6.38%. FII holding in Andhra Bank has fallen by 2.07%. Canara Bank, United Bank of India, Bank of Maharashtra and Punjab & Sind Bank have also seen marginal decline in FII holding.

?In the near term, sluggish credit growth remains a concern for the banking sector. The cut in MSF rate is only going to ease the pressure on short-term lending rates as long-term rates remain high,? said Sonam Udasi, head (research), IDBI Capital. However, he added that investors could look at bank stocks if they had a investment horizon of at least two years: ?Investors can look for value-buying in the sector with a two-year view.?

While ICICI Bank and State Bank of India (SBI), the largest lenders in terms of asset size, are yet to disclose the change in their shareholding pattern, their shares have fallen by 14.30% and 15.60%, respectively, over the July-September quarter. ICICI Bank shares are currently priced at R947.95, while SBI is trading at R1,633.

Within the NBFC space, Housing Development Finance Corporation (HDFC) has seen the size of FII shareholding shrink by half a percentage point. Power Finance Corporation and IDFC have seen significant outflows of overseas capital as FIIs have reduced their holding by 1.12% and 2.65%, respectively.

Experts feel poor asset quality remains a concern for the financial sector. ?We expect non-performing liabilities to rise by approximately 50% from Q1 levels, and believe that markets have overdiscounted this. However, there is the risk that some of this stress could be front-ended in FY14 itself ? this would drive continued stock volatility, especially during the earnings season in October. Wholesale lenders remain more vulnerable; though we think the immediate pressures will come from outside the infra space,? JPMorgan analysts observed in a note.

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First published on: 11-10-2013 at 02:58 IST
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