Mar. 22 - Apr. 4, 1999
Market Round-up
Excess FII holding will be frozen in buybacks

Buyback of shares by companies in which the FII holding has already touched, or is about to touch, the investment limit of 24% or 30%, as the case may be, will result in FIIs exceeding their prescribed limits in the post-buyback reduced equity capital. SEBI has clarified that in such situations, it would 'freeze' the excess holding and prohibit further FII investments in these companies. It will not, however, force FIIs to scale back to the permitted limits (24% or 30%) by 'disinvesting'. But fresh investments will be permitted only when the FII investment levels 'fall below' the limits applicable to the reduced equity capital. Thanks to this arrangement, non-FII shareholders will not be denied the benefit of the buyback facility.

Foreign investments record a big fall

Foreign investment inflows to the country have plummeted by 79% during the first three quarters of this fiscal over the same period of 1997-98. Total foreign investment during Apr.-Dec.'98 amounted to just $ 880 mln, as against $ 4,253 mln for Apr.-Dec.'97, according to the 1998-99 Economic Survey. The decline is mainly a result of a net outflow of $ 682 mln in portfolio investment(by FIIs) during the first three quarters of 1998-99, compared to a net inflow of $ 1,742 mln for the same period last year.

The drop in foreign investment inflows apart, the other prominent feature during 1998-99 has been the virtual drying up of external commercial borrowings.

MTNL not to buy back govt shares

MTNL, the basic telecom service provider in Mumbai and Delhi, has dropped its plan to buy back shares held by the government. One of the reasons for dropping the proposal is that investors in VSNL's recent GDR issue did not appreciate it. The planned cross-holding of shares between MTNL and VSNL, and the proposal to buy back shares have not found favour among investors.

MTNL had announced that it wanted to raise about Rs 500 cr from a buyback of about 5% of the government equity. The government holds 57.16% equity stake in the company.

UTI reducing MIPs' exposure to equities

UTI seems to be scaling down its exposure to equities for its monthly income plans (MIPs) in a phased manner. Details of investments by MIP-96 (IV), just communicated to investors, indicate that equities comprise less than 20% of the funds under management. In comparison, debentures account for 72.5% of the scheme's investible funds. The MIP's equity portfolio has obviously recorded a depreciation, commensurate with setbacks suffered by the stock markets.

The MIP report to unitholders points out that the fund 'plans to decrease its exposure to commodity and cyclical stocks, and increase exposure to defensive sectors'.

ICICI Venture Funds mulls turnaround fund

ICICI Venture Funds Management Company plans to launch the country's first turnaround fund. The venture capital company has initiated talks with multilateral agencies like the World Bank and intends to tap major domestic institutions to set up the fund with an inital corpus of Rs 1,000 cr.

The fund is aimed at companies which have good business prospects but require additional funding to remain competitive in the globalised business environment. It will target companies which currently figure in FIs and banks' defaulters list. Once a company is turned around, the fund will seek an exit, either by offloading its equity in the market or through a buyback agreement with the company.

Connectivity snag hits trading on NSE

A loss of connectivity between National Securities Depository (NSDL) and Stock Holding Corporation of India (SHCIL) led to chaos in the back offices of several stock brokers. The snag also left investors having depository accounts with SHCIL in the lurch.

NSDL's system stopped receiving instructions (given by investors for sale of shares) from SHCIL's depository participant (DP) module on 7 March. This raised a backlog of over 2000 trades. Thanks to the snag, some brokers could not meet the pay-in requirements at the National Stock Exchange (NSE). They were unable to deliver the shares they had sold in time. As the snag could not be rectified, NSE auctioned off these trades worth Rs 10 cr.

NSDL currently has 82 DPs connected to it via VSATs and SHCIL is one of them.

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