Apna time aa gaya: HDFC Bank’s spell of underperformance may be over as MSCI weight likely to increase

Foreign shareholding in HDFC Bank stock stood at 54.83 percent at the end of June.

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26 Aug, 2025 12:21

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HDFC Bank stock may be putting its long spell of underperformance behind as the likely increase in its MSCI weight will bring down the significant overweight position foreign investors have had post-merger, ending the supply overhang in the stock post merger.

Shareholding data for June 2024 released on July 2 showed that foreign ownership in HDFC Bank stood at 54.83 percent, which makes it eligible for increase in MSCI weight during the upcoming August 2024 rebalancing. The latest foreign ownership opens up the ‘foreign room’ in the stock to more than 25 percent, necessary for the index provider to include a stock at its full market-cap weight.

With this inclusion, HDFC Bank is likely to get MSCI inflow of up to $5 billion.

Also read: MC Exclusive: $5.2 billion inflows could chase HDFC Bank in August MSCI India Index rebalancing

Moneycontrol had exclusively reported in May this year that foreign brokerage Macquarie noted in a sales note that based on FII selling in February and May, HDFC Bank's MSCI India weight should double in the August rebalance. This could potentially bring in passive buying of $5.2 billion or 281 million shares into the stock.

Besides, the note said that FIIs were overweight by approximately 800 basis points in March 2023 and that was down to roughly 500 basis points in March 2024. “As MSCI weight of HDFC Bank doubles from 3.82% currently to 7.64%, this 500 basis point overweight position would go below 100 basis point (index weight will go up + holding will go up on passive buying). Finally, the technical overhang will be behind us,” the note said.

Currently, HDFC Bank ranks No. 4 in the MSCI India Index, with a weight of 3.89 percent. India's weight in MSCI EM currently stands at 19.2 percent.

As of March 2024, the investment headroom for foreign portfolio investors in the bank was 24.95 percent and foreign holdings in the stock were at 55.54 percent. According to MSCI's rules, a security can be included in the index at its full market-cap if at least 25 percent of its shares are available to foreign investors, a measure known as "foreign room." If the foreign room is between 15 and 25 percent, MSCI applies an adjustment factor of 0.5 to calculate its weight in the index. Securities with less than 15 percent foreign room are not included in the investible universe.

Macquarie in its note had explained that MSCI index weights are based on the market-cap that is available to foreign investors, adjusted for free float.

Nuvama had also recently noted that the weightage of HDFC Bank, Indus Towers and Mphasis may go up depending of availability of headroom for foreign shareholding.

Domestic funds eye HDFC Bank stock

Already, momentum has been picking up in the HDFC Bank stock. Mutual Funds have been increasing their stakes in the bank on the back of cheap valuations. Mutual Funds purchased shares worth Rs 7,600 crore in May, marking the fifth consecutive month of funds buying HDFC Bank shares. This trend has continued into June. The latest ownership data showed that six mutual funds own Rs 163 crore shares, up from Rs 152 crores in March 2024.

Shares of HDFC Bank have gained around 10 percent over the last one month, after under performing for almost one year. The stock has been flat with paltry gains of 0.48 percent in the last one year even as the Nifty Bank is up 15.52 percent.

On July 2, HDFC Bank stock gained 1.34 percent to end at Rs 1,728, was trading at Rs 1,728, around 1.34 percent higher. Nuvama expects the stock to continue gaining momentum and cross Rs 1,900 until the official announcement on August 13.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.