Overseas investors on Friday lapped up shares of HDFC Bank
after the Reserve Bank of India (RBI) lifted foreign portfolio investors (FPIs) buying restriction on the stock. The scrip surged by 9.5 per cent— its biggest intraday gain in three years— to Rs 1,450 apiece as FPIs
scrambled to buy the stock in the limited window period. Shares of HDFC Bank, however, retreated to end just 3.75 per cent up at Rs 1,377 after the RBI
reimposed the ban.
As per the FDI
policy, foreign investment in Indian banks
is capped at 75 per cent, while FPIs
can buy up to 74 per cent stake in the stock through the stock exchange platform.
HDFC Bank’s consistent track record has made the stock a darling among foreign investors, who make full use of their investment limit. In fact, American depository receipts (ADRs) of HDFC Bank
often traded at a 10-12 per cent premium to the domestic shares due to lack of FPI legroom in the home market.
“Over the past week, HDFC Bank
ADR was trading at 10 per cent premium to the domestic market. Also, the stock commands a healthy premium of up to 12 per cent in FPI-to-FPI trades. Overseas investors were willing to pay top dollar for HDFC Bank.
This was quite clear as we saw a sharp surge in the stock after RBI
lifted the restriction,” said an analyst.
Shares worth Rs 15,000 crore were traded on the National Stock Exchange (NSE) and BSE on Friday. According to analysts, the investment limit in HDFC Bank
opened up due to conversion of ESOPs.
Market players said domestic institutional and retail investors tried to sell stocks during the uptrend. Within hours, the RBI
issued a circular informing that the stock had crossed 74 per cent investment cap and barred any further purchase by FPIs.
As per provisional data, FPIs
on Friday bought shares worth Rs 8,043 crore, while domestic investors sold shares worth around Rs 5,632 crore in the overall market.
Interestingly, as HDFC Bank
has a huge impact on the benchmark indices, the 9.5 per cent surge in the stock saw the Sensex climb 28726.26, 425 points, or 1.5 per cent in intra-day trade and the Nifty too surged close to its record high at 8,896.45, up by 118 points or 1.35 per cent. Both the indices, however, gave up their gains to end just 0.5 per cent higher as the rally lost steam.
still ended as the second-most valuable stock with a market capitalisation of Rs 352,314 crore, overtaking Reliance Industries, which ended with a market cap of Rs 348,829 crore.
Investors across all segments have been enthused by HDFC Bank’s stocks as they have delivered market-beating returns year after year. The bank has a strong track record of growing its net profit by 20-30 per cent in the last five years. Its strong presence, particularly in the retail lending segment coupled with its formidable liability franchise, has steered the kind of growth witnessed in the past few years. It has also consistently increased its market share thanks to its sustained focus on expanding its distribution network and improving its digital channels. The bank’s ability to keep a stringent check on its asset quality (gross non-performing assets ratio historically below 1.3 per cent) is another factor that attracts investors.
However, some analysts have issued caution saying that the task of replicating the 20–30 per cent growth rate could be challenging given the current operating environment.
Siddharth Purohit of Angel Broking says, “In the last two quarters we have seen the bank’s earnings moderate from its historical peak. So for HDFC Bank
stock to replicate the past performance, earnings will have to pick up.”
Suresh Ganapathy of Macquarie Capital is more bullish. “The return on equity for HDFC Bank
has consistently been around 20 per cent and this is reflecting in their loan growth as well. I expect the HDFC Bank’s stock to deliver 15 – 20 per cent gain in the next one year,” he says.