FII limit: SBI, PNB, BOB, Canara, Union, Indian Bank may see $921 million MSCI inflows

Six PSU banks namely State Bank of India (SBI), Punjab National Bank (PNB), Canara Bank, Union Bank, Bank of Baroda (BOB) and Indian Bank are expected to see over $921 million in passive MSCI inflows if the FII limit on PSU banks are raised to 26 per cent from the current 20 per cent.  Chances of an FII limit increase look likely, a media report suggested. From a passive flows perspective, the big impact would come via MSCI indices if the change goes through, Nuvama Alternative & Quantitative Research said.

SBI is seen as major beneficiary with $466 million in passive inflows, as its current FII holding stands roughly at 10 per cent. Indian Bank could be fresh inclusion to MSCI indices and may attract $177 million inflows. BOB and PNB may see $76 million each inflows on weight increase while Canara Bank and Union Bank may see $62-64 million flows, data showed.  

That said, Nuvama was quick to note that the timeline is hard to pin down, saying there has been recurring chatter about a possible hike in the FII limit for PSU banks over the past few years. But the timing has always been anyone’s guess.

The proposal is seen taking a couple of quarters to pass, and only after that would MSCI reflect the higher headroom in its indices.

"When I look at FII holdings across PSU banks, they largely range between 4.5 per cent and 11 per cent. With the current 20 per cent cap, there’s still room, meaning the limit isn’t binding yet," said Abhilash Pagaria, Head at Nuvama Alternative & Quantitative. 

He added that, being conservative, if one assumes the FII cap is raised from 20 per cent to 26 per cent, the potential passive flow impact could still be meaningful.