HDFC Bank’s stock price surged over 3% to reach a new peak in early trading on Wednesday, driven by expectations of increased passive fund inflows following a potential rise in its weightage within the MSCI index.

The latest shareholding pattern reveals that foreign institutional investors (FII) now hold less than 55% of the bank, specifically at 54.8% as of June 2024, which is anticipated to bolster the bank’s weightage in the MSCI index and attract higher passive investments.

According to Nuvama Alternative & Quantitative Research, if foreign institutional investors (FIIs) hold less than 55% of HDFC Bank, its weight in the MSCI index could potentially increase significantly from the current 3.8% to between 7.2% and 7.5%.

This shift might lead to inflows amounting to $3.2 billion to $4 billion. The scenario of FIIs holding below 55% triggers a mechanism where the FII headroom of 25% moves from a half-factor to a full factor.

HDFC Bank Soars 20% in 3 Months: $4 Billion Inflow Bonanza Ahead? VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that the recent trend of delivery-based buying in HDFC Bank’s stock is expected to continue, possibly pushing the stock price higher and strengthening its resilience.

As HDFC Bank’s weightage in the Nifty index increases, ETFs and active funds are likely to increase their delivery-based buying. This could have a minor negative impact on other heavily weighted stocks in the Nifty such as RIL, TCS, Infosys, and ICICI Bank.

The upcoming MSCI Emerging Markets Index rebalancing is scheduled for August, with the official announcement set for August 13th. According to Abhilash Pagaria, Head of Nuvama Alternative & Quantitative Research, based on their calculations, HDFC Bank’s anticipated increase in weight should result in approximately $3.3 billion in inflows.

Jefferies views the potential rise in HDFC Bank’s weight within the MSCI index as a positive near-term catalyst for the stock. They also highlight strong deposit growth and improving Net Interest Margins (NIMs) as key drivers in the medium term. Jefferies maintains a ‘Buy’ rating on HDFC Bank shares with a target price of ₹1,880 per share.

UBS suggests that the expected increase in MSCI weightage could lead to buying in HDFC Bank stock ranging from $3 billion to $6.5 billion, a factor partially reflected in the recent rally. UBS also maintains a ‘Buy’ recommendation on HDFC Bank shares with a target price of ₹1,900 per share.

HDFC Bank Soars 20% in 3 Months: $4 Billion Inflow Bonanza Ahead? Recently, HDFC Bank’s US-listed American Depository Receipts (ADR) surged by over 4% on the New York Stock Exchange (NYSE). This increase in HDFC Bank’s share price also bolstered the Bank Nifty index, which rose by more than 1.85% or nearly 1,000 points, surpassing the 53,000 level.

After a period of relative stagnation, HDFC Bank’s share price has experienced a notable rally, climbing nearly 20% over the past three months and more than 12% in just one month.

As of 9:30 am, HDFC Bank shares were trading at ₹1,770.00 apiece on the BSE, marking a 2.28% increase from the previous close.