HDFC Bank’s shareholding data for the June quarter showed a decline shareholding by foreign institutional investors (FII), which will pave way for increased weightage for the stock in the MSCI index and increased inflows to the scrip.

What Happened: According to the latest shareholding pattern, the FII holding in India's largest bank fell to 54.83% from 55.54% in the March quarter. Within this, foreign portfolio investors (FPI) holding declined to 47.17% from 47.83% in the previous quarter. 

The remainder of its shares are listed as American depository receipts (ADR). This fall in FPI holding is likely to increase the weightage of HDFC Bank in MSCI indices, bringing in foreign inflows to the stock. 

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According to Nuvama Alternative and Quantitative Research, HDFC Bank's weightage in the MSCI Emerging Market index will increase from 3.8% to 7.2%-7.5%. This will bring in inflows of around $3.2 billion (around ₹26,727 crore) to $4 billion (around ₹33,408 crore). 

MSCI will announce the August review's results on August 13 and the decision will come into effect on August 31. 

Jefferies maintained a "buy" call on HDFC Bank with a target price of ₹1,880, reasoning that the fall in foreign shareholding will likely to help with the MSCI rejig. According to the research firm, this would be a positive near term catalyst for the stock and in the medium term, strong deposit growth and improving net interest margins would be the key drivers. 

UBS also maintained "buy" call with a target price of ₹1,900, saying the MSCI rejig would lead to $3 billion to $6.5 billion (around ₹25,056 crore to ₹54,289 crore), which is partly factored in the stock’s recent rally. 

Price Action: Shares of HDFC Bank surged 2.89% to ₹1,780.60 on Wednesday morning, hitting an all-time high. 

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