FPI legroom in Kotak Bank exceeds 20%

This may pave way for the stock's re-entry into FTSE All-World index

Foreign portfolio investor (FPI) shareholding in private sector lender Kotak Mahindra Bank (KMB) declined for the seventh straight quarter during the three-month period ended June 2022. According to the latest disclosure, FPI shareholding in the company stood at 40.55 per cent, down 31 basis points (bps) over the March 2022 quarter. Since December 2020, FPI shareholding is down 454 bps to 45.09 per cent.

Following the sharp decline in FPI holding, the foreign investment room in KMB has increased to 20.01 per cent. This may pave the way for KMB’s re-entry into the FTSE All-World index.

“KMB was deleted from the FTSE All-World Index following the introduction of the minimum headroom rule in September 2014. The stock has not been added back to the FTSE All-World Index since the foreign room has stayed below 20 per cent in the past few years,” said analyst Brian Freitas of Periscope Analytics who publishes on Smartkarma.

“KMB's foreign room as on June 30 is 20.01 per cent and just higher than the 20 per cent required. The next rebalance where KMB will be eligible for inclusion in the FTSE All-World Index is the September SAIR (semi-annual index review). The foreign room will need to be above 20 per cent at the close on August 12,” he added.

Shares of KMB rose 1.42 per cent to end at Rs 1,826 apiece on Friday. Getting included in the FTSE index is a big event for the stock as it could potentially result in foreign capital flows of $800 million, according to a note by Sriram Velayudhan, vice-president, IIFL Alternative Research.

These flows will likely accrue in a phased manner and only a small quantum will come in the near term.

“At the September rebalance, FTSE passive trackers are estimated to buy 3.77 million shares (inflows of $85m). Subject to foreign headroom staying above 20 per cent, passive trackers will need to buy the same number of shares at each of the next 10 rebalances. The entire inclusion process will conclude at the March 2025 rebalance,” said Freitas.

Currently, the foreign ownership limit (FOL) for KMB is 55 per cent. “It would help if that increases to 74 per cent to ensure that the passive flows keep coming,” he said.

KMB is part of the MSCI India Index with a limited investability factor (LIF) adjustment factor of 0.5 as the foreign room is lower than 25 per cent. Shares of KMB are up 7 per cent in the past year, outperforming the Bank Nifty index which is up 3.5 per cent.
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