HDFC Bank may see inflows of up to $4 bn as MSCI weightage to rise

Move could lead to doubling of weight in MSCI index; over $3 bn of passive buying, says Nuvama report

Foreign portfolio investor (FPI) holdings in HDFC Bank dropped below 55 per cent at the end of the June 2024 quarter, according to a disclosure made by the private sector lender.

The FPI holdings fell to 54.83 per cent from 55.54 per cent at the end of March 2024 quarter. Amid sustained selling by FPIs, their holding had come off from 66 per cent in the past five quarters.

The development assumes significance as 55 per cent is the upper threshold set by global index provider MSCI for the full inclusion of the stock in its indices. Due to an inadequate investment legroom, MSCI has capped its weightage in its indices.

“Currently, HDFC Bank's weight in the MSCI Emerging Market index is around 3.8 per cent. Post rebalancing, it could jump to 7.2 per cent or 7.5 per cent, potentially bringing in $3.2 billion to $4 billion inflows,” said Abhilash Pagaria, Head of Nuvama Alternative & Quantitative Research in a note published post the latest disclosure by HDFC Bank.

In the run-up to the shareholding pattern disclosure, shares of HDFC Bank have outperformed, gaining nearly 10 per cent in the past month versus 4 per cent gain made by the benchmark Nifty.

MSCI’s next rebalancing announcement is expected around mid-August. In the run up to it, the stock is expected to gain further, said market experts. As HDFC Bank is the top weight in both the Sensex and the Nifty, a potential rally in its shares could also lift the overall market.

Shares of HDFC Bank last closed at Rs 1,728. Nuvama expects the stock to head towards Rs 1,900 in the run up to the MSCI announcement. Analysts said given the large impact, it remains to be seen if MSCI increases HDFC Bank’s weight in a phased manner or all at once.