HDFC Bank’s share price surged as the bank’s foreign institutional investors (FIIs) holding fell below 55%, potentially leading to a significant weight change in the MSCI index from 3.8% to 7.2% to 7.5%, which could trigger inflows of $3.2 billion to $4 billion.
The share price of HDFC Bank jumped over 3% to hit a record high in early trading on Wednesday due to expectations of substantial passive fund inflows amidst a likely increase in its MSCI index weight. The shares climbed as much as 3.66%, reaching a new high of ₹1,794.00 per share on the NSE.
HDFC Bank’s latest shareholding pattern indicates that FIIs ownership has dropped below 55%, a development that is expected to enhance the stock’s weight in the MSCI index, resulting in increased passive inflows. As of June 2024, FII ownership in HDFC Bank stands at 54.8%, according to BSE data.
Nuvama Alternative & Quantitative Research estimates that with FIIs holding below 55%, there could be a significant weight change in the MSCI index, potentially leading to inflows worth $3.2 billion to $4 billion.
When FIIs shareholding falls below 55%, it necessitates an FII headroom of 25%, causing the half-factor to move to full. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that the recent delivery-based buying in HDFC Bank stock could continue, pushing the stock higher and imparting resilience. As HDFC Bank’s weight in the Nifty increases, there will be more delivery-based buying by ETFs and active funds, which might have a marginal negative impact on other high-weightage stocks in the Nifty like RIL, TCS, Infosys, and ICICI Bank.
The upcoming MSCI EM Index rebalancing is scheduled for August, with the official announcement on August 13. Abhilash Pagaria, Head of Nuvama Alternative & Quantitative Research, stated that the weight increase should lead to approximately $3.3 billion in inflows.
According to Jefferies, the increase in HDFC Bank’s MSCI index weight could be a positive near-term catalyst for the stock. In the medium term, strong deposit growth and improving Net Interest Margins (NIMs) are expected to be key drivers. Jefferies has maintained a ‘Buy’ rating on HDFC Bank shares with a target price of ₹1,880 per share.
UBS also believes that the MSCI weight increase could lead to an estimated $3 – $6.5 billion in buying of HDFC Bank stock, which has been partially factored into the recent rally. UBS has a ‘Buy’ rating on HDFC Bank shares with a target price of ₹1,900 per share.
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