HDFC Bank stock gains more than 2.5% ahead of March quarter results

Increase in FPI legroom seen as key trigger

Shares of the country’s largest private sector lender HDFC Bank rose more than 2.5 per cent on Friday, ahead of the announcement of its March quarter earnings. The stock went up 2.64 per cent to end at Rs 1,534.

The stock accounted for nearly half of the gains on the Sensex.

HDFC Bank still ended the choppy week with a 1 per cent loss.

Typically, a blue chip stock doesn’t surge close to 3 per cent a day before its results. This is more so when the earnings outlook is uncertain.

Market observers said the surge could be on account of the sharp sell-off by foreign portfolio investors (FPIs) over the past few trading sessions.

 

Amid rising bond yields in the US, FPIs yanked out close to Rs 19,000 crore during the four trading sessions between April 12 and April 18.

“A considerable part of this sale could be in HDFC Bank. As a result, the investment legroom for FPIs would have now crossed the MSCI threshold,” said an analyst.

At the end of March 2024, investment legroom for FPIs in HDFC Bank had risen to 24.95 per cent.

However, it fell short by only 5 basis points (bps) of the threshold required for index provider MSCI to hike its weight in its global indices. The foreign holding now stands at 55.54 per cent versus the requirement of 55.5 per cent.

Currently, the index provider has applied an adjustment factor of 0.5 since the foreign room is less than 25 per cent.

Removal of the adjustment factor will result in inflows of a massive $4.8 billion (Rs 40,000 crore) into HDFC Bank.

However, changes in FPI shareholding in HDFC Bank will only be clear once the lender declares its June 2024 quarter shareholding.

In the immediate term, however, the market will react to its March quarter numbers, which will be announced on Saturday.

The Street is expecting HDFC Bank to post low single-digit growth in revenues and flat net interest margins (NIM) of 3.4 per cent. This comes as the lender focuses on mobilising deposits rather than aggressively going for loan growth.

While the bank’s net interest income (NII) and net profit are expected to remain flat, its operating profit may get a one-time boost. This is on account of treasury gains and the stake sale in education loan business HDFC Credila.

Shares of HDFC Bank are down 10 per cent on a year-to-date basis, underperforming the Nifty, which is up 2 per cent.