In the first half of the 2024 calendar, mutual funds aggressively bought more than INR 42,000 crore worth of HDFC Bank shares. This aggressive buying spree occurs when foreign investors marginally reduce their holdings in India’s largest bank by market capitalization.
Monthly Purchases Show Consistent Growth
In June, mutual funds bought 4.09 crore shares of HDFC Bank, amounting to INR 6,887 crore. This is the sixth month in a row of solid buying, after INR 7,600 crore in May, INR 1,886 crore in April, INR 4,600 crore in March, INR 8,432 crore in February and INR 12,884 crore in January.
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Key Buyers and Sellers
ICICI Prudential Mutual Fund has emerged as the biggest buyer across individual schemes, for it invested about INR 10,750 crore in the purchases of shares of HDFC Bank. Second on the list were Quant Mutual Fund and HDFC Mutual Fund, which bought equities worth about INR 7,754 crore and INR 5,683 crore, respectively.
The other prized domestic asset purchasers are Kotak Mutual Fund and Nippon India Mutual Fund, with an investment of INR 4,917 crore and INR 4,765 crore, respectively. On the selling side, Canara Robeco Mutual Fund has sold shares worth INR 790 crore, while HSBC Mutual Fund and Baroda BNP Paribas Mutual Fund were sellers of shares worth INR 524 crore and INR 155 crore, respectively.
Historical Perspective on Mutual Fund Investments
There has not been any new trend to see mutual funds making heavy investments in HDFC Bank. In 2023, mutual funds invested more than INR 70,000 crore in the bank shares, while it was about INR 23,800 crore in 2022 and close to INR 11,768 crore in 2021.
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Foreign Ownership and MSCI Considerations
At the end of the June 2024 quarter, foreign ownership in HDFC Bank had clipped in at 54.83 per cent, just below MSCI’s 55.5 per cent threshold needed for a higher weightage. This fact alone had created over 25 per cent ‘foreign room’ in that stock required for inclusion at its total market-cap weight.
HDFC Bank has a 3.8% weight in the MSCI Emerging Markets index. The drop in foreign ownership unlocks possible inflows, as MSCI will likely announce its weight increase decision on August 13. If it gets the nod, Nuvama Research expects that HDFC Bank will receive USD 3-4 bn of inflows by the end of August.
Stock Performance and Earnings
Despite persistent buying by mutual funds, the HDFC Bank share slipped nearly 6 per cent in the first half of 2024 and 5 per cent in 2023 due to weak earnings and relentless EPS downgrades owing to the miss on guidance coupled with a turn in rate cycle dynamics.
The ‘no guidance’ policy has evoked mixed responses in being a prudent policy amidst macro uncertainties. The bank posted a lower NIM at 3.4 per cent and a credit deposit ratio of 105 per cent in FY24. With FY25 EPS expectations now being low enough, analysts believe it may finally end the cycle of downgrades, proving quite critical for this stock’s recovery.
Analyst Downgrades and Future Outlook
A recent change in the rating of HDFC Bank by Bank of America from ‘buy’ to ‘neutral’, while revising the target price to INR 1,830 from INR 1,850 per share indicates this. BofA views that the risk-reward scenario for the stock is narrow for the next 12 months, with meaningful catalysts only likely to come up in FY26. Analysts still believe the shallow rate cut cycle could delay the bank’s NIM recovery.
About the Author
Akshita Siddhapura is a Business Analytics student at SCMS-B, passionate about finance and research. She has a keen interest in financial analysis and strategic growth, showing a strong commitment to business and finance.
