Bank Nifty dips after a day of stellar show, here's the reason

NEW DELHI: Bank Nifty might have led yesterday's rally, but the celebrations proved short-lived as the banking index barely managed to close above the psychological mark of 19,000 today. Most of the index stocks closed in the red, after it got clarified that foreign investment cap for various sectors does not imply to the banking sector.

Bank Nifty fell about ended 62.75 points, or 0.33 per cent, lower at 19,105 level. Kotak Mahindra Bank, Yes Bank and Axis Bank ended up to 1.3 per centlower.

The Cabinet decision to move to composite sectoral limits, including FDI, FII, venture capital, NRI and qualified foreign investment, had sent stocks of private sector banks soaring in yesterday's trade, as investors thought that the government had allowed 74% composite foreign investment, and lifted the 49% limit on FII flow into the sector. The BSE Bankex closed almost 2% higher on Thusrday, with both Axis Bank and Kotak Mahindra Bank ending 4 per cent higher. Yes Bank shares were also up 3 per cent in the preceding session.

But post market hours of Thursday, government sources clarified that the FII limit for banks had been retained at 49 per cent and the portfolio investment ceiling.

"There is no change in the conditions. You cannot expose a sensitive sector such as banking to hot money. At the moment, there is no move to change the FII caps," said a source.

But the decision offers several positives for companies, including those in sectors such as pharma where government approval is required. Sources said that even in these sectors, no approval will be required for foreign institutional investment up to 49%.

(With inputs from TNN)