HDFC Bank ADR rises 4% after lower FII shareholding in June quarter lifts MSCI weight sentiment

HDFC Bank stock is likely to extend gains on Wednesday as its US-listed shares rose more than four per cent on July 2. HDFC Bank American Depository Receipts (ADR) on the New York Stock Exchange (NYSE) was last up 4.10 per cent to $66.76 after India's biggest private lender released its June quarter shareholding data on Tuesday.

According to BSE data, the FII ownership in HDFC Bank as of June 2024 stands at 54.8 per cent, below the 55 per cent-mark, which has raised expectations of greater MSCI inflows in August for HDFC Bank. The FII holding was reported to be critical for HDFC Bank’s June 2024 shareholding pattern.

Also Read: HDFC Bank’s June quarter FII shareholding drops below 55%, MSCI weight set to increase

HDFC Bank’s current weight in the MSCI EM index is approximately 3.8 per cent. According to leading wealth managers and analysts, if FII ownership drops below 55 per cent, the MSCI inflow weightage for HDFC Bank could increase.

‘’If the FIIs reduce their holding from 55.50 per cent to below 55 per cent, there could be a significant weight change from 3.8 per cent to 7.2 per cent to 7.5 per cent, potentially leading to inflows of $3.2 billion to $4 billion, said wealth manager Nuvama Alternative & Quantitative Research in a note.

An American Depositary Receipt or ADR is like a special certificate issued by a US bank, and it represents the shares of a foreign company. These ADRs can be traded on US stock markets, just like regular shares of US companies.

HDFC Bank FII ownership data lifts MSCI inflow sentiments

‘’If the FIIs reduce their holding from 55.50 per cent to below 55 per cent, there could be a significant weight change from 3.8 per cent to 7.2 per cent to 7.5 per cent, potentially leading to inflows of $3.2 billion to $4 billion, said wealth manager Nuvama Alternative & Quantitative Research in a note.

As the FII shareholding moves below the 55 per cent level, it will necessitate an FII headroom of 25 per cent, causing the half-factor to move to full. The foreign investment ceiling in HDFC Bank is 74 per cent, according to BSE data. The foreign headroom means the percentage of shares available to foreign investors in companies.

The August review cut-off will be held between June 18 to 31 and the official announcement will be on August 13. The index adjustment will take place on August 30, 2024. India's weight in the MSCI emerging market (EM) now stands at 19.2 per cent, which is expected to gradually cross the 20 per cent mark.

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HDFC Bank Share Price Trend

Nuvama Alternative & Quantitative Research expects that HDFC Bank share price may jump 10-15 per cent over the potential MSCI weight increase. If the shareholding favours a weight increase (which has a higher probability), the HDFC Bank stock could see a further 10-15 per cent jump until the official announcement in August 2024, according to analysts at Nuvama Research.

HDFC Bank shares have gained over 11 per cent in the last one month, while they have rallied 16 per cent in three months. However, the stock of the private bank major have underperformed so far in 2024 with annual return of 1.72 per cent against Nifty 50's return of 25. 71 per cent. On Tuesday, shares of HDFC Bank opened at ₹1,715 and gained 1.16 per cent to hit an intra day high of ₹1,734.90 before settling 1.51 per cent higher at ₹1,730.55 apiece on the BSE.