InvestorQ : What is meant by the Red Flat on HDFC Bank and IndusInd Bank in terms of foreign ownership of shares in these companies?
Juvina Maggie made post

What is meant by the Red Flat on HDFC Bank and IndusInd Bank in terms of foreign ownership of shares in these companies?

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Deepa Salunkhe answered.
3 weeks ago
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The Red Flat here is a kind of warning list that the companies could soon touch the cap of foreign investments. Thus depositories have to be careful and even custodians of will have to be additionally careful while processing trades of these companies.

Currently, HDFC Bank and IndusInd Bank have been placed in the “Red Flag” list. This list is a system used for monitoring foreign portfolio investor or FPI limits. Under the extant rules, any listed company will enters the Red Flag list when the legroom left for overseas investment is less than 3% of the limit allowed on that stock.

Take the case of HDFC Bank and IndusInd Bank. Currently, FPIs are allowed to invest up to 74% limit in HDFC Bank and IndusInd Bank too. Now comes the catch. The current FPI holding for HDFC Bank is 71.3% while the FPI holding for IndusInd Bank is 73. 1%. This is a warning that the limit is fast approaching.

In the last one month, a lot of FPI money has flowed into these stocks with the result that both the stocks are up sharply. HDFC Bank stock is up 15% while IndusInd is up 31% in the last one month. Now this red flag will put curbs on fresh FPI buying.

There are other non-bank red flat stocks too that you can watch out for. Currently, Novartis India and Procter & Gamble Hygiene and Health Care are two other companies in the red-flag list, where the outer limit is being approached.

Once the stock is red-flagged, any purchase by FPIs can only be done with the explicit assurance that that the overseas investors will divest their excess holdings within 5 trading days from the day of breach of the sectoral cap of 74%. This tends to make stocks unattractive.

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