FPIs expected to rebalance their stance on HDFC, HDFC Bank stocks
The stance taken by FPIs on the stocks of HDFC twins – HDFC Bank and HDFC – has changed drastically in recent years. From holding 19.85 per cent weightage (on a combined basis) in their portfolios in June 2019, FPIs have reduced HDFC twins to 13.83 per cent on December 31, 2021. The recent FPI selling has been accentuated by fundamental pressures on the group stocks.
Going by the swap ratios, the FPI holding in the combined entity is estimated at 66 per cent. In HDFC Bank’s case, the number can go up to 74 per cent; technically, FPIs have 8 per cent leeway in terms of increasing their stake in the bank.
But here’s the catch. HDFC Bank isn’t part of the MSCI Index. Owing to high FPI holding in HDFC, the government has been hesitant in allowing higher FPI holding in the bank.
Though there will be another 8 per cent FPI headroom available in the merged HDFC Bank, MSCI will not be able to raise its stake because the weightage will not fit its investment parameters. Meanwhile, FPIs will have to shed a part of their holdings in the merged entity because of the 10 per cent cap on single FPI ownership in a stock.
Therefore, selling pressure on HDFC twins will remain elevated till the merger concludes as investors rebalance their holdings.