HDFC Bank stock to see inflow of $29 million on NSE rebalancing: Nuvama

HDFC Bank's weight in the Nifty Bank index may rise from the current 26.3 per cent to 27.3 per cent

HDFC Bank stock is likely to see an inflow of $29 million on account of quarterly rebalancing of NSE indices that will take place on Wednesday, June 28, according to a report by Nuvama Research.

Besides HDFC Bank, ONGC ($27 million) Adani Enterprises ($27 million), ICICI Bank ($25 million), Adani Ports and SEZ ($21 million), Coal India ($19 million), HDFC Life ($18 million) and NTPC ($17 million) are some of the other stocks, Nuvama believes, are likely to witness inflows.

"These changes shall become effective from June 30, 2023; adjustment will take place on June 29. The capping factor of stocks in all the Nifty Indices is realigned upon change in equity, investible weighted factor (IWF), replacement of scrips in the index, periodic rebalancing and on a quarterly basis on the last trading day of March, June, September and December by taking into account closing prices as on T-3 basis, where T day is last trading day of March, June, September and December," wrote Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research in a June 27 note.

As a result, Pagaria expects HDFC Bank's weight in the Nifty Bank index to rise from the current 26.3 per cent to 27.3 per cent.

BHEL ($28 million), IndusInd bank ($25 million), Axis Bank ($16 million), Reliance Industries ($12 million), AU Small Finance Bank ($10 million), Bank of Baroda ($10 million), NHPC ($8 million) and JSW Steel ($7 million), on the other hand, are likely to witness an outflow.

Meanwhile, the merger of HDFC Ltd into HDFC Bank will be effective July 1. The boards of HDFC Bank and HDFC will meet on June 30 after the market hours to clear and approve the merger, HDFC Ltd chairman Deepak Parekh said on Tuesday. Both the entities had announced their merger plan in April 2022 and subsequently secured the approval of the National Company Law Tribunal (NCLT).

Post the merger, HDFC Bank will become the tenth-largest bank globally. Each HDFC shareholder with 25 shares will be credited with 42 shares of HDFC Bank.

Most analysts remain bullish on HDFC Bank stock, with those at Prabhudas Lilladher expecting the stock to hit Rs 1,925 levels going ahead - an upside of nearly 16 per cent from the current levels.

"We are optimistic on HDFC Bank as the overhang of merger is largely behind. Net interest margin (NIM) is likely to be protected in FY24 as nearly 50 per cent of the standalone book is fixed rate in nature. That apart, the guidance of strong loan growth (1.5-2.0x of the system) and increase in share of deposits from 10 per cent to 18-20 per cent augurs well. There is merger synergy as 25 million HDFC group customers do not bank with HDFC Bank, while 60-70 per cent of HDFC Ltd. customers do not have a liability relationship with HDFC Bank. Valuation, too, is attractive at 2.6x on core FY25E adjusted book value (ABV) given 1.9-2.1 per cent ROA guidance post-merger," wrote Amnish Aggarwal, director - research at Prabhudas Lilladher in a recent note.