Mutual funds continue to buy HDFC Bank shares for fifth successive month

Mutual funds bought around Rs 1890 crore worth of shares of HDFC Bank in April on the back of Rs 4,600 crore in March, Rs 8,432 crore in February, and around Rs 12,884 crore in January.

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26 Aug, 2025 12:21

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Shares of HDFC Bank Ltd are on everybody’s radar as market participants across categories – brokerages and mutual funds – appear to be quite bullish on the country’s largest lender in terms of valuations.

MFs purchased shares worth Rs 7,600 crore in May. More importantly, this marks the fifth consecutive month of buying of HDFC Bank shares by mutual funds. Mutual funds bought around Rs 1,890 crore worth of shares of HDFC Bank in April, apart from Rs 4,600-crore purchases in March, Rs 8,432-crore worth buying in February, and around Rs 12,884 crore in January.

In terms of the number of shares, mutual funds bought around 4.99 crore shares of HDFC Bank in May. As of May, mutual funds held around 151.69 crore HDFC Bank shares, up from 146.70 crore in April. The value of these shares increased to Rs 2.32 lakh crore from Rs 2.23 lakh crore a month ago, according to data from ACE Equities.

Further, of the 41 mutual funds that have an exposure in HDFC Bank, 26 stepped up their holdings in May, while 14 chose to dilute part of their stakes. Quant Mutual Fund led the buyers pack with the highest purchase of Rs 2,669 crore, followed by ICICI Prudential Mutual Fund and Axis Mutual Fund at Rs 2,210 crore and Rs 982 crore.

In terms of the quantum of stake, SBI Mutual Fund is the largest mutual fund stakeholder in HDFC Bank with 36.91 crore shares worth Rs 56,503 crore in May. It was followed by ICICI Prudential Mutual Fund and HDFC Mutual Fund with 18.61 crore and 17.86 crore shares, valued at Rs 28,490 crore and Rs 27,337 crore, respectively.Other major MF holders include UTI Mutual Fund, Nippon India Mutual Fund, Kotak Mahindra Mutual Fund, and Mirae Asset Mutual Fund.

The stock, however, has been underperforming since the last two years despite a rally in Indian equities. This was primarily on account of consistent EPS downgrades due to guidance misses and shifts in rate cycle dynamics. Meanwhile, the management has adopted a 'no guidance' policy, inviting mixed investor reactions but deemed favorable amid macro uncertainties. In 2023, it was up just 5 percent while so far 2024, it is down 3 percent.

Although the FY25 EPS trajectory remains uncertain, analysts are of the view that the current expectations are sufficiently low, potentially signaling an end to the EPS downgrade cycle -- pivotal factor for the stock's recovery.

Recently, BofA Securities reiterated its Buy recommendation, highlighting attractive valuations at 1.8-1.9x PB and 13-14x PE, which factor in just below 15% growth and ROEs.

The global financial major sees a robust medium-term outlook, anticipating clearer merger synergies from FY26 onwards. Key short-term catalysts for potential re-rating include positive surprises in deposit growth and NIMs (considered achievable), visibility on policy easing, and improvements in foreign investor sentiment and flows into India.

Currently, HDFC Bank boasts of 45 buy ratings and 5 hold ratings, with no sell ratings, compared to 42 buys and 3 holds, also with zero sells, a year ago, according to Bloomberg.

According to a recent Macquarie note, the potential increase in weight of HDFC Bank in the upcoming MSCI India index rebalance in August could lead to passive buying worth $5.2 billion or 281 million shares of the bank.

Macquarie mentioned in a sales note to clients that HDFC Bank narrowly missed the MSCI weight increase in the May rebalance though it added that considering the FII selling in the past two months, HDFC Bank's MSCI India weight is expected to double in the August rebalance.

Following Macquarie's analysis, UBS analysts predicted a more moderate increase for HDFC Bank during the upcoming index rebalance. They estimated around $3-3.5 billion inflows, contrasting with Macquarie's forecast of $5.2 billion.

UBS also suggested that an extra $2.5-3 billion of buying from other funds with index-tracking traits is probable. They added that a gradual increase would render this inclusion insignificant. The brokerage has given buy rating on the stock with a target price of Rs 1,900 a share.

HDFC Bank currently is at the fourth position in the MSCI India Index, with a weight of 3.89%.

Macquarie believes the weightage could double, effectively resolving the technical overhang in the stock caused by its merger.

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