Govt’s decision, banker’s delight! Removal of sub-limits on foreign ownership in Banks makes the Bank Index & markets rally

Shares of Axis Bank and Yes Bank surged in trade after the government re-interpreted the percentage of equity that foreign investors can hold into Indian stocks.

The government has now introduced a composite percentage cap on the extent foreigners can own Indian shares. Earlier, there were separate sub-limits which would cater to FDI, FII, NRI and other non-Indian holdings within the overall cap which was different for each sector. For instance, in banking 74 percent equity in an Indian private bank can be owned by foreigners. Within the 74 percent, the foreign institutional limit was capped at 49 percent. Now these artificial sub-limits have been removed by the government.

Axis Bank was the top gainer on the Nifty. It surged 21.55 rupees, or 3.7 percent, to 605.55 rupees. Its Futures were trading 3.5 percent higher on a strong rise in Open Interest, pointing to a build up of long positions in the counter.

Yes Bank, a Nifty constituent as well, added 3.2 percent, or 25.80 rupees, to 830.10 rupees. The bank's FII limit was at 49 percent and 48 percent was already exhausted. With the introduction of the composite cap, FIIs can now buy up to 74 percent of Yes Bank in theory.

With a higher availability of float, Yes Bank can now return to the MSCI Index.

(Image credit: Indiatimes)