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  1. Global ETF rebalancing to benefit Bharat Forge, Bharti Infratel

Global ETF rebalancing to benefit Bharat Forge, Bharti Infratel

Bharat Forge and Bharti Infratel may benefit from an expected supply-demand mismatch.

By: | Mumbai | Updated: November 6, 2014 11:06 AM
The broker noted that auto major Hero MotoCorp could also see its weightage getting re-adjusted upwards after an increased limit for FII ownership from 40% to 49% in October.

The broker noted that auto major Hero MotoCorp could also see its weightage getting re-adjusted upwards after an increased limit for FII ownership from 40% to 49% in October.

Bharat Forge and Bharti Infratel may benefit from an expected supply-demand mismatch due to the upcoming rebalancing of global exchange-traded funds (ETFs) this month, says Kotak Institutional Equities.

In a recent strategy report, the broking house notes that the rebalancing is likely to have a negative impact on Godrej Consumer Products (GCPL), HDFC Bank and M&M Financial Services due to no, or limited, foreign headroom.

Given that Bharti Infratel has seen an increase in its free-float capitalisation in the recent past, the stock may be added as a constituent of the benchmarks tracked by global ETFs.

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“Bharat Forge, on the other hand, meets the minimum size requirement now and could see incremental buying from passive funds,” says the note. The auto-ancillary company is one of the best performing stocks this year with a more-than-two-fold jump in market value to R19,638 crore.

The broker noted that auto major Hero MotoCorp could also see its weightage getting re-adjusted upwards after an increased limit for FII ownership from 40% to 49% in October.

“HDFC Bank remains an FII-restricted stock and could see exclusion, while M&M Financial Services may see selling due to foreign headroom issues. Foreign interest in GCPL continued over the quarter, resulting in the available foreign headroom nearing the 15% threshold,” it added.

As of the quarter ended September 2014, FIIs held 33.84% in HDFC Bank and another 16.38% through depository receipts. Investors await a nod from the Foreign Investment Promotion Board for an increase in the FII limit. In case of M&M Financial Services and GCPL, FII holdings as of the September quarter stood at 41.5% and 29% against the allowed limit of 49% and 35%, respectively.

For the analysis, the brokerage house compared the average trading volume of the stocks with the possible incremental change in demand/supply.

In Bharti Infratel’s case, the incremental demand could be of $49 million while, for GCPL, incremental selling at $26 million is equivalent to nearly 10 times its average daily volume of the last six months.

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