On Tuesday, Anil Chanana, chief financial officer of HCL Technologies, started the December quarter results announcement with what he called a ‘new year gift’. The board decided to extend the maximum shareholding allowed to be held by foreign institutional investors (FII) to 49 per cent, he said. HCL is the latest entrant in the long list of companies opening their doors wide for foreign investors.
Last month, SKS increased the FII limit to 74 per cent. “The proposal to raise the investment limit would pave way for the proposed QIP issue, slated to happen by March 31,” said Dilli Raj, chief financial officer. FIIs hold about 15 per cent in the company and are showing a lot of interest for increasing the holding, he had then said.
For SKS, it was the need for funds that led to the extension. Some companies may also look at it as a way to provide support to falling stock prices in the tough environment, say experts. Kunj Bansal, chief investment officer, Sanlam India, said, “HCL is flush with funds. The move could be to get on par with industry peers such as Infosys, which have high FII holding. Therefore, if there is demand from investors, the management is sending a message that at least there are no restrictions from their side. When share prices are falling, this is a good way to support prices.”
According to the Reserve Bank of India data, nearly two dozen companies have received shareholder approvals to allow more foreign investment in different categories. In more than half of these cases, FII stake has increased, in a year when FIIs were net sellers in Indian equities.
The Reserve Bank of India allows FIIs, Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through stock exchanges in India.
The ceiling for overall investment for FIIs is 24 per cent of the Indian company and 10 per cent for NRIs/PIOs. The 24 per cent can be raised up to the sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect. And, the ceiling of 10 per cent for NRIs/PIOs can be raised to 24 per cent, subject to the approval of the general body of the company passing a resolution to that effect.
According to a Business Standard Research Bureau study, 17 of 19 companies which increased their FII limits beginning February last year saw changes in shareholding pattern. Of these, in 11 companies, FIIs increased their stake between 0.13 per cent and 19 per cent. VA Tech Wabag, which increased the limit in June to 49 per cent, has seen the FII stake more than double to 31.2 per cent. Jubilant Foodworks, Gitanjali Gems and SVC Resources are other companies that saw an FII stake increase of at least 12 per cent in the past year.
However, the FII stake increase did not necessarily result in gains for the stock price. Seven of these 11 companies have given negative returns on a one-year basis. Gitanjali and Jubilant were the best performers, returning 53 per cent and 45 per cent, respectively, over the past year.
In addition to these, five companies — Compuage Infocom, Kitex Garments, Indiabulls Wholesale, Gitanjali and Everonn Education — raised their NRI investment ceiling from 10 per cent to 24 per cent. The Dubai-based Varkey group recently took a significant stake in Everonn.
Another possibility is that promoters get into an understanding with FIIs, wherein once the limits get extended, the institutions can buy the shares from domestic investors or promoters as the case may be, say experts.