Red Flag List in Banking & FPIs

Red Flag list in banking is a system used to monitor Foreign Portfolio Investor (FPI) limits. A listed company enters this red flag list when the available limit for the overseas investment is less than 3 percent of the permissible limit

Foreign Portfolio Investors (FPI) can invest up to 74% in any financial listed stock in India, when the investment percentage of FPI in any financial listed company is more than 71%, the company enters into the red flag list. Any FPIs cannot purchase more than 74% and this can act as less attractive to foreign investors

This kind of stock entering into Red Flag zone can be taken in 2 ways

• The stock was most attracted by Foreign Portfolio Investors (FPI) and they felt the stock price will increase in near future. Hence that was over bought and so it entered into red flag zone. This has the chance of growing even further

• The stock doesn't have any room for new FPIs to invest and the stock may trade very stable or reduce in price sooner

Once the stock reach this list, incremental FPI buying is permitted on condition that overseas investors will divest their excess holdings within five trading days from the day of breach of this sectoral cap of 74%

Ok now, let's come to a conclusion. Should we buy this stock which entered into the Red Flag list ?

Let us be optimistic, this stock is overbought by foreign investors and that's the reason it was in red flag list. If this stock continuous to stay in this red flag list, this means Foreign Portfolio Investors (FPIs) are holding this stock and this has the feel that it will grow high. Should we buy this now ? you decide

Any investment linked with SIP will generate abundance over time. No stock is over expensive until the demand prevails.

Have a Great Day

B G Nareshkumar