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

HDFC Bank Ltd., India’s largest private sector lender released its shareholding pattern for the April-June quarter, which has seen holdings from Foreign Portfolio Investors (FPIs) decline further compared to the March quarter. The resultant decline is likely to result in the lender getting inflows between $3 billion to $4 billion as its weightage in the MSCI indices stands to increase from current levels.As per data shared on the BSE, holdings of Foreign Portfolio Investors fell to 54.83% from 55.54% at the end of the March quarter. Of this holding, FPIs hold 47.17% in the Indian entity, a figure down from 47.83% in the March quarter, while the rest is held in HDFC Bank’s shares listed in the US or American Depository Receipts (ADR).

FPI holdings had to fell below 55.5% for lender’s weightage in the MSCI indices to increase. Foreign investment ceiling in HDFC Bank is currently at 74%.

Brokerage firm BoFA Securities had written in a note that if the FPI shareholding in HDFC Bank drops further in the June quarter, it is likely to be in compliance with the MSCI headroom norms and will lead to buying worth ₹34,000 crore from MSCI funds.

With this, the FII headroom for HDFC Bank has now increased to 25%. Foreign headroom means the percentage of shares available to foreign investors in companies.According to MSCI guidelines, if FPI headroom for a stock is below 25% and equal to or higher than 15%, index provider uses an adjustment factor of 0.5, but if the headroom rises more than 25%, adjustment factor of 1 is used.

An increase in the adjustment factor would mean an increase in weightage of the stock, which will consequently lead to more inflows.

Based on the shareholding pattern, the holdings of domestic mutual funds in HDFC Bank has increased to 24.83% in December from 23.17% in March.

Shares of HDFC Bank have been ending higher for the last two trading sessions. The stock ended 1.3% higher on Tuesday at ₹1,728, becoming the top contributor to the Nifty 50’s gains in points terms.