UBS, Macquarie Share Contrasting Views On HDFC Bank's Gains From MSCI Rejig

Analysts at global brokerage UBS have projected a more moderate boost for HDFC Bank in the upcoming MSCI India index rebalance in August.

What Happened: UBS suggested that the upweight could lead to around $3 billion-3.5 billion (₹25,041 crore-₹29,215 crore) inflows, lower than Macquarie’s prediction of $5.2 billion (₹43,404 crore).

UBS also indicated that an additional $2.5 billion-3 billion (₹20,869 crore-₹25,041 crore) of buying from other funds with index-tracking characteristics is likely and that a staggered increase will render this inclusion a non-event.

Previously, Macquarie had predicted that HDFC Bank’s weight in the MSCI India index would double in the August rebalancing, potentially attracting passive buying of $5.2 billion or 281 million shares into the stock.

See Also: Tata Steel Clarifies Decarbonisation Plan Negotiations With Dutch Government Are Ongoing

Second Chance: In a sales note circulated to clients, Macquarie noted that HDFC Bank missed the MSCI weight increase by a narrow margin in the May rebalance. However, considering the FII selling in the last two months, Macquarie expects HDFC Bank’s MSCI India weight to double in the August rebalancing.

MSCI index weights are calculated based on the free-float adjusted market cap available for investment by foreign investors.

As of March 2024, the investment headroom for foreign portfolio investors in India's leading private sector bank was 24.95%, just short of the threshold needed for the index provider to increase its weight to a full weight. Foreign holding in the stock stood at 55.54%, while the required holding is 55.5%.

Price Action: HDFC’s share price was up 0.45% at ₹1,558.75 in morning trade on Thursday. The stock is down 8.2% so far this year.

Read Next: Tata Steel Clarifies Decarbonisation Plan Negotiations With Dutch Government Are Ongoing