HDFC Bank set to witness more foreign fund inflows

Mumbai: With foreign institutional investors‘ headroom in HDFC Bank remaining above 20% in the September quarter, India’s most valued lender is set to attract another $1.8 billion in inflows from overseas funds.

In August, global index provider MSCI decided to increase the weight of HDFC Bank in two tranches – first in August, and then in November. This was contingent upon foreign investors’ headroom remaining 20% at the least.

“HDFC Bank’s September shareholding is out, and the FII headroom remains safely above 20%,” said Abhilash Pagaria of Nuvama Alternative & Quantitative Research. “As a result, the second and last phase of the weight increase will occur during the November 24 rejig, which is expected to lead to approximately $1.8 billion in inflows.”

The forthcoming MSCI EM Index rebalancing will be at the end of November, with an official announcement mid-November. However, price action is likely to occur pre-emptively as speculation builds ahead of the release of shareholding data.

Agencies

HDFC Bank shares have declined 1% in the last one month compared to a flat Sensex. Following the merger of HDFC Bank and HDFC last year, the combined entity’s total weight in the MSCI index should have been higher, considering the total free float capitalisation.

HDFC had a weight of 6.74% in the MSCI index and HDFC Bank at around 3.5%. However, MSCI opted to maintain an adjustment factor of 0.5 instead of 1. An adjustment factor of 1 will allow foreign investors headroom to buy at least a 25% stake in the bank.

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HDFC Bank set to witness more foreign fund inflows

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