HDFC Bank share price may jump 10-15% on potential MSCI index weight increase

HDFC Bank shares have gained over 11% in one month, while they have rallied 16% in the past three months.

HDFC Bank stock has been an underperformer this year so far, but has lately gained momentum. In the last one month, HDFC Bank shares have gained over 11%, while they have rallied 16% in three months.

HDFC Bank shares can jump another 10-15% if its weightage in the MSCI index increases in its August review.

A critical number to monitor in HDFC Bank’s June 2024 shareholding pattern would be the Foreign Institutional Investors (FII) holding, which if drops below the 55% mark could lead to an increase in MSCI weightage.

At present, HDFC Bank’s weight in the MSCI EM Index is approximately 3.8%. If FIIs reduce their holding from 55.50% to below 55%, there could be a significant weight change from 3.8% to 7.2% to 7.5%, potentially leading to inflows of $3.2 billion to $4 billion, Nuvama Alternative & Quantitative Research said in a note.

As the FII shareholding moves below 55%, this will necessitate an FII headroom of 25%, causing the half-factor to move to full.

“According to base case calculations, the weight increase should lead to approximately $3.3 billion in inflows. As the impact will be seen within 6 to 8 days and the stock is quite liquid, I don’t believe the weight increase (if it happens) should be staggered; it should occur in one go,” said Abhilash Pagaria, Head - Nuvama Alternative & Quantitative Research.

If the shareholding favors a weight increase (which has a higher probability), HDFC Bank stock could see a further 10-15% jump until the official announcement in August, he added.

However, in case of an unfavorable outcome, HDFC Bank share price could cool off to around ₹1,600, at which point we could see good interest from domestic funds, Pagaria said.

The forthcoming MSCI EM Index rebalancing will be in August, with the official announcement to be made on August 13. However, price action is likely to occur preemptively, as speculation builds ahead of the release of the shareholding data.

“Domestic funds have been consistent buyers of HDFC Bank, while FII flows into India have picked up, potentially indicating purchases of private banks, particularly HDFC Bank,” Nuvama said.

Meanwhile, according to Nuvama estimates, the August 2024 rejig of MSCI Global Standard Index would lead to inclusions of stocks such as Vodafone Idea, Prestige Estates, Oberoi Realty, Schaeffler India, Dixon Technologies and Uno Minda.

The August review cut-off will be between June 18 to 31 and the official announcement will be on August 13 with the adjustment taking place on August 30, 2024.

India's weight in MSCI EM now stands at 19.2%, which is expected to gradually cross the 20% mark.

At 2:40 pm, HDFC Bank shares were trading 1.23% higher at ₹1,704.25 apiece on the BSE.

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