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.
“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.