HDFC Bank stock grabs investor interest on likely MSCI flow

Mumbai: HDFC Bank could test its record high over the next few weeks if the momentum on the counter sustains on anticipation that the stock could attract MSCI inflows of $3.5-4 billion if the weight of the stock doubles on the MSCI India Index at the upcoming quarterly review in August, analysts said.

The stock’s life high stands at ₹1,757.50 hit on 3 July last year, following the merger of mortgage lender HDFC with the bank. The anticipation among domestic investors is of the so-called foreign room of the stock widening to 25% from March quarter’s 24.94%.

Foreign room refers to the proportion of shares still available to foreign investors relative to the foreign ownership limit, which is 74%. For the weight on MSCI India Index to double from 3.93% to 7.9%, the foreign room should hit 25%. This threshold as at the end of the March quarter was just 6 basis points short at 24.94%, as per brokerage Nuvama.

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The FII shareholding, including the American Depository Receipts listed on US exchanges, was 55.54%, and should fall to 55.5% by the end of the June quarter for the foreign room to increase to 25% (74%-55.5%)/74%.

HDFC Bank Stock Surge

“There is immense domestic investor interest in HDFC Bank,” said Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research. “FIIs might also hop on. Whether the MSCI weight increase happens in August or not is anybody’s guess, but in the run-up to that, until shareholding is declared in the first week of July, sentiment could move the stock towards all-time highs.”

This expectation perked up delivery-based buying on 19 June to a four-month high of 2.48 crore shares, driving up the stock 3% to ₹1,657.85 apiece.

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Apart from this spurt, traders have also been closing out bearish bets since 30 May. The 27 June expiry futures contract has seen open interest (OI)—outstanding positions—falling from 19.69 crore shares on 30 May to 16.9 crore shares as of Thursday.

Accompanied by this fall in OI, the spot price of HDFC Bank has jumped 9.49% from 30 May to ₹1,669.35 on Thursday. A rise in price along with falling OI indicates short covering. To cover a short, a bear or hedger must buy the stock back, which raises its price.

“Given the momentum, I think the share could test ( ₹)1,757 levels in the next two-odd weeks,” said Chandan Taparia, senior vice president and head— derivatives and technical research, Motilal Oswal. “Buying and short covering could accomplish this.”

He pegs support for the stock at ₹1,610.

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