Bses Share Of Net Fii Investments On The Decline

The presence of foreign institutional investors (FIIs) through net investments at the country's oldest exchange has declined steadily over the past four years.

Statistics of the Bombay Stock Exchange (BSE) reveal that even while the net FII investments at the capital markets have been steady and moved up sharply last year, the net FII investments at the BSE have declined since 1993. FII investments at the BSE has declined from 53.49 per cent in 1994 to 32.13 per cent in 1996.

According to experts, the crucial factor which has caused this trend has been the growth of the National Stock Exchange, with a presence at over 70 centres nationwide. Over the years, the investment pattern adopted by FIIs too has changed from dealing in non-specified group stocks (witnessed between 1993-95) to more liquid, blue chip stocks (in 1996).

 

The FIIs had at that time dabbled in `B1' and `B2' group stocks but the FIIs have preferred to trade in more liquid stocks at the NSE in the last 12 months.

Sources at HSBC James Capel said the presence of FIIs through trading at the NSE has increased over the past two years. ``The rational earlier would have been that the trading/settlement cycles were smoother at the NSE than at BSE,'' a source said.

NSE managing director R H Patil, when queried on the changing pattern, said that the bourse was marketed extensively during 1996 to FIIs and foreign custodians. "We marketed the exchange aggressively during the year and travelled abroad to explain to international investors about the exchange. This was done even in India when W I Carr organised a workshop in Goa. These factors could have contributed to more FII business on NSE," he said.

Sanjay Agarwal, CEO, Lloyds Securities feels that there is a greater acceptance of NSE amongst foreign brokers and institutions. "The main reason for FIIs to prefer NSE is trade guarantee. FIIs do not mind from which bourse the title has come from as long as they get a clean lot. They attach adequate importance it. With new scheme in place, BSE will also catch up with them," he said.

As far as negotiated deals are concerned, NSE has also brought discipline in this type of segment. "Earlier, the completion of such a trade was used to take anywhere between 30-60 days. NSE has brough down the settlement period to 14 days. FIIs seem to have liked such an arrangement," Agarwal added.

Brokers also feel that NSE had aggressively marketed its bourse to foreign institutional investors. Says a dealer at a leading institutional brokerage: "Two factors have affected the shifting of FII business to NSE. Firstly, the exchange has been marketed very well to FIIs and foreign custodians. Secondly, the liquidity on the bourse is very high. For example, suppose a client needs 3 lakh shares of SBI, it is possible to lock the trade on NSE in less than three hours.