FIIs cut stake in banks in March 2015 quarter

Foreign institutional investors (FIIs) have reduced their stake in most of the banks during the fourth quarter ended March 2015 on concerns over asset quality and poor financial performance.

Out of 40 listed banks, 28 banks so far declared their January - March 2015 quarter (Q4FY15) shareholding pattern data, reveals that in 20 banks FIIs have reduced their stake that includes frontline banks such as State Bank of India (SBI), ICICI Bank, Bank of India (BoI) and Canara Bank.

In public sector undertakings (PSUs) banks such as Punjab National Bank (PNB), Bank of Baroda (BoB), Allahabad Bank, Indian Overseas Bank and Canara Bank, their stake declined by one percentage point each, while in Jammu & Kashmir Bank, South Indian Bank, Federal Bank, Karur Vysya Bank and DCB Bank between two to five percentage points.

Explains Mayuresh Joshi, vice - president (institutional), Angel Broking: "Investors are unsure as to how the asset quality issues will pan out. The asset quality of banks, we feel, will continue to remain under pressure in Q4FY15 and Q1FY16, especially the mid-cap PSU lot where they have been catering to the metals, iron & steel and select real estate companies. Moreover, the credit growth for the entire banking sector still remains muted. The selling pressure will still continue if the banks report bad numbers over the next few months."

Among the PSU banks, BoB saw the maximum decline in FII holding that dipped to 16.53% at the end of March quarter, from 17.96% from December-end.

However, in Kotak Mahindra Bank, FIIs stake touched a record high level at 36.85% in March ahead of the merger of ING Vysya Bank. They held 35.26% stake in Kotak Mahindra Bank at the end of December quarter.

Underperformance

Banking stocks have underperformed in the market during fourth quarter of FY15 with the Bank Nifty declining 3% compared to 2.5% rise in the NSE 50-stock index, CNX Nifty, during this period.

The state-owned banks have seen sharp fall with the CNX PSU Bank index 'slipping 20% during the quarter. However, thus far in the month of April, it recovered 7.4% against 3% gain each recorded by the Bank Nifty and the CNX Nifty.

"Post October-December 2014 (Q3) results, PSU Bankex has significantly underperformed the broader market. Host of factors like negative surprises on asset quality, weak capital & coverage position and muted growth have led to such an underperformance," said Darpin Shah and Shivraj Gupta analyst at HDFC Securities in a report.

Going ahead, analysts expect PSUs banks to report subdued financial performance in Q4FY15.

Analyst at Ambit Capital in a Q4 results preview report said, "We are negative on all PSU banks, except BoB, as we believe elevated credit costs and constrained capital would keep the financial performance subdued at a time when the Government's progress on corporate governance is gradual and uncertain."

Analysts at Edelweiss Securities also feel that PSU banks' credit growth is likely to be muted as cyclical factors will take time to drive growth. As for private banks, they will continue to trend above industry growth and, in turn, gain market share.