HDFC Bank’s foreign room inches up, falls short of 25% required for higher weight in MSCI indices

HDFC Bank’s foreign room has risen to 24.95 per cent due to selling by overseas investors during the March quarter. The foreign holding now stands at 55.54 per cent, BSE data shows.

Foreign room is the proportion of shares still available to foreign investors relative to the maximum allowed. The foreign investment limit in privately held banks is 74 per cent.

However, this increase in FPI ownership falls slightly short of the 25 per cent minimum required for an augmented weight in the MSCI indices. Historically, MSCI has adhered strictly to its rules without making exceptions.

With the potential for further selling in this quarter, there may be a possibility of a weight-up adjustment in the August review, said Abhilash Pagaria, Head of Nuvama Alternative & Quantitative Research.

“The stock is trading near multi-year lows, and we don’t expect a sharp correction from here on as little is built in from a weight-up perspective. Declines should be used as an opportunity to go long,” he said.

The foreign room has steadily increased over the past several quarters; it was at 10.5 per cent at the end of December 2021.

HDFC Bank shares have slid nearly 10 per cent this year on the bourses.

Bernstein has an Outperform rating on the stock, with a price target of Rs 2,100.

IIFL Securities had a Buy rating on HDFC Bank given its potential to gain market share over an extended period of time, and attractive valuations of 1.9x 1-year forward core P/B and 13x 1-year forward P/E (both two standard deviations below long-term averages).