Kotak Mahindra Bank jumps 5% to Rs 1,847.60 after FPI room increases

Analysts said, the higher legroom will lead to an increase in the lender's weight in the MSCI India index, purchases worth close to a billion dollars of its stock

Shares of Kotak Mahindra Bank rose 5 per cent on Tuesday to end at Rs 1,847.60 on the BSE, after the foreign portfolio investor (FPI) legroom at the counter increased to 25 per cent. The higher room, analysts said, will lead to an increase in the private sector lender’s weight in the MSCI India index, prompting purchases worth close to a billion dollars of its stock.

The shareholding pattern as on March 31 showed FPI holding in the company had declined by 147 basis points quarter-on-quarter to about 41.22 per cent. This translates into the FPI headroom of little more than 25 per cent.

“The increase in foreign room to higher than 25 per cent should result in MSCI dropping the limited investability factor (LIF) on the stock. That, in turn, should result in Kotak Mahindra Bank’s weight in the MSCI India Index increasing from 1.38 per cent to 2.68 per cent,” analyst provider Brian Freitas of Periscope Analytics, who publishes on Smartkarma, said.

He estimates passive MSCI trackers will have to buy around 44.27 million shares of the bank (worth Rs 8,180 crore or $996 million at its last closing price of Rs 1,848). The buying will take place on May 31 and the latest spurt in the stock price was in anticipation of the move.

A note by Nuvama said Kotak Mahindra Bank’s stock has been languishing for quite some time and the MSCI weight increase trigger could lead to strong momentum. The increase in FPI legroom could also lead to the stock’s inclusion in other global indices, analysts said.

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