HDFC Bank’s foreign room grows post-merger, potential impact on MSCI index

Following its recent merger, HDFC Bank has seen a decrease in the stake held by foreign institutional investors (FIIs), according to analysis by Nuvama Alternative & Quantitative Research. This shift has led to an increase in the bank’s ‘foreign room’, which refers to the proportion of shares still open to foreign investors against the maximum limit of 74% in privately held banks.

FIIs’ stake in HDFC Bank stands at 58.75%, post-merger. This figure marks a decline from June 2023, when these investors held a larger share of 60.3%. Consequently, the foreign room has expanded to 20.3%, up from June’s 18.3%.

This dynamic could potentially affect HDFC Bank’s standing on the , where it shares space with Taiwan Semiconductor, Tencent Holdings (OTC:), and Samsung Electronics (KS:). If the foreign room reaches 25%, it would enhance HDFC Bank’s index weightage, prompting passive trackers to purchase more shares.

Moreover, the recent selling by foreign investors has contributed to a decline in Nifty, with HDFC Bank and Reliance Industries being major contributors. Notably, foreign portfolio investors (FPIs) and sovereign wealth funds, along with global depositary receipts holders, hold a significant portion of HDFC Bank’s shares.

According to InvestingPro data, HDFC Bank has an adjusted market cap of 441.55M USD. The bank’s Price to Earnings (P/E) ratio stands at 2.89, which is relatively low, indicating that the shares are undervalued. Furthermore, the bank has seen a substantial revenue growth of 77.37% in the last twelve months, which is a positive sign for potential investors.

InvestingPro Tips also highlight that HDFC Bank has consistently increased its earnings per share and has raised its dividend for 3 consecutive years. This indicates a strong financial performance, which could be attractive to investors. The bank is also a prominent player in the banking industry, providing stability and reliability for investors.

Despite Nomura’s rating downgrade for HDFC, the increase in foreign room or decrease in foreign holdings could potentially augment the bank’s weightage on the MSCI index. For more insights and tips on HDFC Bank, interested investors can visit InvestingPro, which offers additional 11 tips for HDFC Bank and other companies.

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