MSCI rejig worries weigh on HDFC Bank stock

As of March 31, FII holding was 34%, against 34.9% in the previous quarter

The HDFC Bank stock has come under pressure on fears of a possible sell-off by foreign funds due to restructuring by MSCI. The global index provider is set to cut the bank’s weightage in its MSCI India index from the current 5.5 per cent to about two per cent. The move could lead to selling by passive foreign funds.

The new weightage will be effective from June.

On Thursday, the HDFC Bank stock closed at Rs 718 on BSE, down 0.9 per cent. It was the only one that saw a loss in the 30-share benchmark Sensex.

A move to reduce the stock’s weightage in the index could be reduced. The move is being triggered by foreign institutional investor (FII)-buying in the stock, which has hit its permissible limit.

In December 2013, the Reserve Bank of India (RBI) had barred foreign investors from buying additional shares in the company, after their shareholding had hit the upper limit of 49 per cent. Increasing the foreign shareholding limits needs the approval of RBI, as well as the Foreign Investment Promotion Board. But with the election model code of conduct in place since early last month, the FIPB approval for raising the limit is pending.

Analysts said selling in the stock would continue until the FII-buying limit was raised or its weightage fell further. “MSCI has made an exception in the case of HDFC Bank, making it clear it will not remove the stock completely from the index. But it may gradually reduce the weightage of the stock in the index till the limit is raised,” said Rikesh Parikh, vice-president (equities), Motilal Oswal Securities.

Analysts feel about 29 million shares, or 1.2 per cent of HDFC Bank’s total equity base, worth Rs 35 crore, could be offloaded by foreign investors.

So far this week, the bank stock has fallen about five per cent. During the same period, the BSE Sensex and National Stock Exchange Nifty have declined about 1.5 per cent each.

As of March 31, FII holding in HDFC Bank stood at 34.08 per cent, against 34.9 per cent in the previous quarter.