As the FII stake in HDFC Bank is less than 55 per cent, it will require 25 per cent FII headroom. Analysts at ICICI Securities expect the stock to fetch up to $3.5 billion
Shares of HDFC Bank rose 4 per cent in intraday trade on the National Stock Exchange (NSE) on Wednesday to Rs. A record of 1,794 was reached. of June 2024 quarter. This drop in foreign ownership has helped the bank meet the criteria for weighting in the MSCI index.
On July 3, 2023, the stock touched its previous high of Rs. 1,757.50 crossed. In the past two days, HDFC Bank has risen 6.5 percent, from its previous month’s low of Rs. 1,454 (touched on June 4), up 23 percent.
At 09:18 am, shares of HDFC Bank were trading at Rs 1,778.65, up nearly 3 percent compared to a 0.45 percent gain on the Nifty 50. 14 million shares changed hands on NSE and BSE.
According to HDFC Bank’s exchange disclosure, FPI holdings declined to 54.83 percent in the June quarter from 55.54 percent at the end of the March 2024 quarter. Amid continued selling by FPIs, their holdings have declined from 66 per cent in the last five quarters.
The development takes on significance as global index provider MSCI has set an upper limit of 55 percent for full inclusion of stocks in its indices. MSCI has limited its weightage in its indices due to lack of adequate investment leverage.
Currently, HDFC Bank’s weightage in the MSCI index is 3.8 percent. With room for foreign rights, the possibility of increasing the MSCI foreign inclusion factor from 50 per cent to 100 per cent could lead to passive inflows of $2.5 – 3.5 billion, acting as a catalyst, ICICI Securities said in a note.
MSCI’s next rebalancing announcement is expected in mid-August. Before then, market experts expect stocks to rise further. As HDFC Bank is heavily weighted in both Sensex and Nifty, a potential rally in its stock could lift the overall market.
HDFC Bank is a leading private sector bank with consistent growth and operational performance across various cycles. After the merger, it has become the second largest bank by size with a diversified portfolio. The bank has maintained high return ratios, resulting in premium valuations.
HDFC Bank is a top performing bank with a track record of strong growth and profitability spanning over two decades. However, due to the merger, earnings ratios and credit growth are moderate and may take a few years to normalize. Valuations have come down significantly over the past five years, making the risk-premium healthy despite lower returns, analysts at CLSA said in a recent Financial Sector Outlook report.
An improvement in deposit accruals, particularly CASA deposits, and an increase in NIMs will be key boosters for the stock, the global brokerage said.
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