HDFC Bank to Attract $1.8 Billion in Foreign Inflows by November: Here’s Why Investors are Excited!

HDFC Bank is expected to see more money flowing in from foreign investors, with about $1.8 billion likely to come in by the end of November. This is because the foreign ownership limit in the bank remained above 20% during the September quarter, which meets the conditions set by MSCI, a global index provider.

In August, MSCI decided to increase the weight of HDFC Bank in two phases: the first in August and the second in November, provided the foreign investment cap stayed above 20%.

Since the September shareholding data shows that foreign investor headroom is still over 20%, the second phase of the weight increase will happen during the MSCI Emerging Markets Index adjustment on November 24.

According to Abhilash Pagaria from Nuvama Alternative & Quantitative Research, this change will result in the additional $1.8 billion in inflows. While the MSCI EM Index reshuffling will be officially announced in mid-November, market activity is expected to pick up in anticipation as shareholding data becomes public.

HDFC Bank shares have dropped by 1% over the past month, compared to a flat performance by the Sensex. After HDFC Bank merged with HDFC last year, the combined entity should have had a larger weight in the MSCI Index. However, MSCI used an adjustment factor of 0.5 instead of 1, which limited the amount foreign investors could buy. If the adjustment factor was raised to 1, it would allow foreign investors to own up to 25% of the bank’s shares.