HDFC Bank’s share price surged over 3% to reach a record high in early trade on Wednesday, driven by expectations of substantial passive fund inflows amid a likely increase in the bank’s weight in the MSCI index. The shares of HDFC Bank jumped as much as 3.66% to a fresh high of Rs 1,794.00 apiece on the NSE.
The recent shareholding pattern of HDFC Bank reveals that foreign institutional investors (FII) ownership in the bank has dropped below 55%, a development anticipated to boost the stock’s weightage in the MSCI index, subsequently leading to higher passive inflows. According to BSE data, as of June 2024, FII ownership in HDFC Bank stands at 54.8%.
Nuvama Alternative & Quantitative Research estimates that FIIs holding below 55% in HDFC Bank could result in a significant weight change from 3.8% to 7.2%-7.5%, potentially triggering inflows worth $3.2 billion to $4 billion. The drop in FII shareholding below 55% necessitates an FII headroom of 25%, causing the half-factor to move to full.
“According to base case calculations, the weight increase should lead to approximately $3.3 billion in inflows,” said Abhilash Pagaria, Head of Nuvama Alternative & Quantitative Research.
Brokerages on HDFC Bank
Jefferies Report on HDFC Bank
Jefferies has maintained its “Buy” rating on HDFC Bank, setting a target price of Rs 1,880 per share. The report highlights several crucial factors that could influence the bank’s performance and stock valuation in the near and medium term.
Foreign Shareholding Adjustment: Foreign shareholding in HDFC Bank has dropped to 54.8%. This reduction may positively impact the bank during MSCI’s review process.
MSCI Inclusion Factor: The drop in foreign shareholding assists in raising MSCI’s foreign inclusion factor for HDFC Bank from 50% to 100%. This adjustment could lead to an increase in the bank’s weight in the MSCI index during the next review scheduled for August 2024.
Near-Term Catalysts: The potential inclusion in the MSCI index weight is seen as a positive near-term catalyst for HDFC Bank’s stock.
Medium-Term Drivers: In the medium term, Jefferies identifies strong deposit growth and improving Net Interest Margins (NIMs) as key drivers for HDFC Bank’s performance.
HDFC Bank Stock Performance in Last One Year
In terms of stock performance, HDFC Bank shares have demonstrated positive returns across multiple time frames. Over the past month, the stock has given a commendable 13.41% return, showcasing its stability and growth potential. The last six months have seen even more impressive results, with a substantial increase of 6.58%, indicating a strong upward trend.
Year-to-date, HDFC Bank shares have surged by 5%, reinforcing the stock’s positive momentum in the current fiscal year. Looking at the broader picture, the stock has delivered returns of over 3.67% in the last twelve months, emphasizing its sustained growth and attractiveness to investors.
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