HDFC Bank shares climbed nearly 4 per cent in Wednesday trade, adding about Rs 38,000 crore to the private lender’s market capitalisation (m-cap) on hopes the stock would see increase in MSCI weight. As the lender declared its June quarter shareholding pattern, analysts believe HDFC Bank’s weightage in MSCI Global Standard index could double in the August MSCI rejig, leading to over $3 billion in passive inflows for the counter.
Shareholding data for June 2024 released on July 2 showed that foreign ownership in HDFC Bank stood at 54.83 percent, which makes it eligible for increase in MSCI weight during the upcoming August 2024 rebalancing. The latest foreign ownership opens up the ‘foreign room’ in the stock to more than 25 percent, necessary for the index provider to include a stock at its full market-cap weight.
With this inclusion, HDFC Bank is likely to get MSCI inflow of up to $5 billion.
The stock surpassed its previous high of Rs 1,757.50 touched on July 3, 2023. In the past two days, HDFC Bank has soared 6.5 per cent, bouncing back 23 per cent from its previous month’s low of Rs 1,454 (touched on June 4).
According to HDFC Bank’s exchange disclosure, FPI holdings fell to 54.83 per cent in the June quarter from 55.54 per cent at the end of the March 2024 quarter. Amid sustained selling by FPIs, their holding has come off from 66 per cent in the past five quarters.
The development assumes significance as 55 per cent is the upper threshold set by global index provider MSCI for the full inclusion of the stock in its indices. Due to an inadequate investment legroom, MSCI has capped its weightage in its indices.
Currently, HDFC Bank’s weight in the MSCI index is at 3.8 per cent. With room for foreign ownerships, probability of increase in MSCI foreign inclusion factor from 50 per cent to 100 per cent could lead to passive inflow of $2.5 – 3.5 billion which acts as a catalyst in the near-term, ICICI Securities said in a note.
MSCI’s next rebalancing announcement is expected around mid-August. In the run-up to it, the stock is expected to gain further, said market experts. As HDFC Bank is the highest weight in both the Sensex and the Nifty, a potential rally in its shares could also lift the overall market.
HDFC Bank is a leading private sector bank with consistent growth and operational performance over various cycles. Post-merger, the bank has become the second largest in terms of size with a diversified portfolio. The bank has maintained superior return ratios resulting in premium valuations.
HDFC Bank is the best run bank with a track record of strong growth and profitability for over two decades. However, return ratios and loan growth have moderated due to the merger and may take a few years to normalise. Valuations have come off significantly in the past five years, thus making risk-reward healthy despite lower profitability, analysts at CLSA said in a recent financial sector outlook report.
Improvement in deposit accretion, especially CASA deposits, and increase in NIMs would be the key catalysts for the stock, the global brokerage firm said.
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