NEW DELHI: The celebrations at banking counters may be shortlived as the government's decision to move to a composite foreign investment cap for sector will not impact banks ordefence although it will provide fungiblity across various segments, including retail, credit information companies andpower exchanges, among others.
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The cabinet decision to move to composite sectoral limits — including FDI, FII, venture capital, NRI and qualified foreign investment — had sent stocks of private sector banks soaring as investors thought that the government had allowed 74% foreign investment, and lifted the 49% limit on FII flow into the sector. While the BSE Bankex closed almost 2% higher, Axis Bank and Kotak Mahindra Bank were up 4% each, while Yes Bank shares rose over 3%.
On Thursday, TOI had reported that the government is set to clear the plan for a composite cap. Soon after the announcement, industry players began cheering the move. But by evening clarity emerged as government sources clarified that the FII limit for banks had been retained at 49% and the portfolio investment ceiling in defence stayed at 24%. "There is no change in the conditions. You cannot expose a sensitive sector such as banking to hot money. Similarly, defence is a strategic sector. At the moment, there is no move to change the FII caps," said a source.
But the decision offers several positives for companies, including those in sectors such as pharma where government approval is required. Sources said that even in these sectors, no approval will be required for foreign institutional investment up to 49%. "The message is that the government is seeking to make several corrections and provide flexibility," said a source.
www.sevagiri.com
The cabinet decision to move to composite sectoral limits — including FDI, FII, venture capital, NRI and qualified foreign investment — had sent stocks of private sector banks soaring as investors thought that the government had allowed 74% foreign investment, and lifted the 49% limit on FII flow into the sector. While the BSE Bankex closed almost 2% higher, Axis Bank and Kotak Mahindra Bank were up 4% each, while Yes Bank shares rose over 3%.
On Thursday, TOI had reported that the government is set to clear the plan for a composite cap. Soon after the announcement, industry players began cheering the move. But by evening clarity emerged as government sources clarified that the FII limit for banks had been retained at 49% and the portfolio investment ceiling in defence stayed at 24%. "There is no change in the conditions. You cannot expose a sensitive sector such as banking to hot money. Similarly, defence is a strategic sector. At the moment, there is no move to change the FII caps," said a source.
But the decision offers several positives for companies, including those in sectors such as pharma where government approval is required. Sources said that even in these sectors, no approval will be required for foreign institutional investment up to 49%. "The message is that the government is seeking to make several corrections and provide flexibility," said a source.
Source - TOI
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