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Fuzzy classification means no clarity on FII holdings

Fuzzy classification means no clarity on FII holdings
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First Published: Thu, Apr 24 2008. 12 23 AM IST

Updated: Thu, Apr 24 2008. 12 23 AM IST
Mumbai: Foreign institutional investors (FIIs) have raised their equity holding in one out of five publicly traded Indian companies in the quarter ended 31 March. Or have they?
The uncertainty emerges because of the way firms classify FIIs in the data they submit to the Bombay Stock Exchange (BSE) on their shareholding structure at the end of every quarter. This classification, it emerges, isn’t uniform, which means a firm classified as an FII in one quarter may not have been in previous ones.
Thus, while FIIs have increased their stakes in many companies in the quarter to March, there could be cases where this increase is simply because some investors were not classified as FIIs in previous quarters.
The increase could also be on account of a conversion of foreign currency convertible bonds, or FCCBs, by investors. FCCBs are treated as debt until they are converted into equity.
State-owned Bharat Earth Movers Ltd (BEML) has investments from Carlson Fund Equity-Asian Small Cap, Lloyd George Investment Management Bermuda Ltd and FID Funds Mauritius, all foreign funds registered with India’s capital market regulator. However, they were not listed as FIIs until this quarter.
As a result of this, BSE data shows a sudden increase of 16 percentage points in FII holding in BEML in the March quarter.
It isn’t clear at which level the mis-classification happened. However, a BSE spokesperson said in an email response that the exchange doesn’t “classify” FIIs.
“The data pertaining to shareholding pattern is provided by the company in the format prescribed under clause 35 of the Listing Agreement pursuant amendment by Sebi (India’s stock market regulator),” the spokesperson added.
Still, despite FIIs selling around $3.02 billion worth of Indian stocks between January and March this year, it is likely that their holding in some companies has really gone up.
A Mint analysis of data reported by BSE shows that FII stake has increased in 269 companies from a pool of 1,498 firms that have furnished the latest shareholding pattern to the stock exchange.
For instance, Yash Birla Group-owned Birla Power Solutions Ltd saw the largest rise in FII shareholding, from zero to 44%. UK-based asset manager Somerset, Lotus Global Investments and Mauri Investments collectively acquired a stake of at least 35% in the firm, through a qualified institutional placement route. It isn’t known whether the remaining increase is on account of an actual investment by FIIs or a mis-classification in previous quarters.
Gitanjali Gems Ltd and Rajesh Exports Ltd, the two leading gem and jewellery players in the country, saw FII ownership increasing by 10 and 13 percentage points, respectively, between January and March. According to the BSE spokesperson, there was “some conversion of FCCBs” in the quarter that could account for this.
According to a Mumbai-based FII equity broker, who does not wish to be named, foreign funds “continue to bet on sound companies and select themes” even as the Indian market as a whole is perceived expensive because of the global repricing of assets.
Infrastructure, real estate and power are among the strongest themes from India, said Parth Gandhi, managing director of India-infrastructure focused private equity firm Vision Global Investments Llc. “There is tremendous appetite for India among investors,” he said.
The US-based Vision Global recently raised about $300 million, in its first closing, from global investors.
Among the 24 firms of the 30-stock Sensex basket that have so far reported their new shareholding pattern, seven witnessed an increase in FII holding. In the 50-stock broader Nifty index, 12 of the 37 companies that have updated their shareholding pattern data, saw an increase in FII ownership.
New Delhi-based drug manufacturer Ranbaxy Laboratories Ltd has seen FII ownership rising by 4 percentage points, the biggest rise among the Nifty companies.
Tata Power Co. Ltd, HCL Technologies Ltd and Idea Cellular Ltd also saw FII stake holding rising between 2.24 and 1.14 percentage points.
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First Published: Thu, Apr 24 2008. 12 23 AM IST
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