Airtel foreign ownership puzzle stumps investors again, stock sheds gains

Jump in user base and margin improvement helped stock end with a gain of 3.3% in a falling market. Nevertheless, it shed 8.3% from day's high of Rs 488 to end at Rs 448

Confusion surrounding foreign ownership in Bharti Airtel caught traders on the wrong foot on Wednesday — the second such instance. 

In early trade, shares of the telecom operator jumped as much as 12.6 per cent — the most in six months — buoyed by a strong September quarter and buzz that the overseas investment limit had been hiked to 100 per cent.  Jump in the user base, along with margin improvement, helped the stock close the session with gains of 3.3 per cent in a falling market. Nevertheless, it fell 8.3 per cent from day’s high of Rs 488 to end at Rs 448 on the NSE, as news of the increase in ownership turned out to be a false alarm. 

Dealing rooms were abuzz that depository firm National Securities Depository (NSDL) had set Airtel’s foreign investment limit at 100 per cent. 

Many brokers even circulated projections that the move could result into buying worth Rs 3,000 crore from exchange traded funds (ETFs), as it would result in doubling of the so-called foreign inclusion factor (FIF) in global indices like the MSCI Emerging Market index.

However, it later emerged that the NSDL had maintained status quo on Airtel’s FPI limit.

“Bharti Airtel has received the approval for an increase in foreign investment of up to 100 per cent. The said approval is subject to certain conditions, which are in the process of being complied with, and overall foreign investment limit for the time being shall be monitored at 49 per cent,” according to the NDSL, which has been tasked with monitoring foreign portfolio investor (FPI) limits in Indian companies.

This was not for the first time that the Airtel scrip saw a similar controversy. In August, shares of Airtel had dropped after the MSCI had halved Airtel’s weight on the MSCI India index during its August review — to 1.92 per cent from 3.68 per cent. 

Many had slammed the MSCI for pruning Airtel’s weight instead of increasing it, citing the approval to hike FPI limit to 100 per cent in the telecom operator.

“MSCI is aware of the government approval to increase the foreign ownership limit in Bharti Airtel to 100 per cent, announced at the beginning of 2020. However, MSCI is not aware of any public information on the potential effective date of this change," MSCI had said back then.

Market players say the regulator Securities and Exchange Board of India (Sebi) should probe the matter.

“Some elements in the market are taking advantage of the ambiguity around Airtel’s FPI limit. Sebi should check if anyone is making wrongful gains out of this,” said a market expert. 

This leads to the question — what is the actual FPI cap in Airtel at present?

While Airtel has hiked the limit to 100 per cent in principle, the company needs to address some issues on overseas investment limits in subsidiaries, before the changes come into effect. Until then, the cap on foreign ownership will remain at 49 per cent under the automatic route, and it could go beyond 49 per cent under the government approval route.