IndusInd shares fall after overseas investors breach buying limit

IndusInd Bank was added to the so-called 'red flag' list two weeks ago after FPI shareholding crossed 71 per cent

3 min read Last Updated : Apr 22 2020 | 2:15 AM IST

Shares of private sector lender IndusInd Bank plunged 12 per cent on Tuesday after overseas investors breached buying their limit, people in the know said. Custodians had to sound off an alert to foreign portfolio investors (FPIs) asking them to halt fresh purchases or face forced liquidation, they said. Shares of IndusInd declined Rs 56.2, or 12.3 per cent, to end at Rs 400.8.

The stock was the worst-performing in the Sensex and the Nifty pack. Shares worth over Rs1,200 crore changed hands on the NSE and another Rs 71 crore on the BSE. As on Monday, FPI investment legroom in the stock was just 0.15 per cent, or 1.1 million shares—worth Rs 50 crore at Monday’s close.

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“The little available legroom got exhausted after the market opened. This led to panic selling among FPIs, weighing on the stock price performance amid weakness in the market,” said an official working with a custodian, who facilitate FPI trades.

IndusInd Bank was added to the so-called ‘red flag’ list two weeks ago after FPI shareholding crossed 71 per cent. A red flag is activated whenever the foreign investment is less than three per cent of the aggregate FPI limits, which is 74 per cent in case of IndusInd.

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Once a stock is added to the red-flag list fresh FPI buying is permitted on condition that overseas investors will have to divest their excess holdings in five trading sessions from the day of breach. The divestment takes place on a proportionate basis. To illustrate, investment legroom in IndusInd was 1.1 million shares on Monday. If the total FPI buying on Tuesday was 2.2 million shares, twice the available limit, all the FPIs had have purchased the stock will have to sell half of their holdings.

Fresh FPI buying in the stock is permitted after the shareholding again falls decisively below 74 per cent, said experts.

“FPIs who have bought could have to sell at lower prices if the stock continues to fall,” said the official quoted earlier.

Shares of IndusInd Bank had rallied more than 40 per cent in the past two weeks amid depleting FPI investment limits. The stock is still down more than 70 per cent on a year to date basis.