HDFC Bank Set For Gradual Weightage Rise in FTSE Indices

HDFC Bank, one of India’s leading private sector banks, is poised to see a significant increase in its weightage in the FTSE indices over the next few months. This follows the mega-merger of its parent company Housing Development Finance Corporation (HDFC) with the bank in 1st July 2023.

According to an announcement by FTSE Russell, the global index provider, HDFC Bank’s investability weightage will rise from 0.81% currently to 1.52% in the benchmark FTSE Emerging All Cap Index. However, this weightage hike will be implemented in three phases between September 2023 and March 2024.

In the first phase, during the FTSE index review in September 2023, an initial increase in weightage will occur. The second and third tranches of the weightage rise are slated for December 2023 and March 2024 respectively.

FTSE Russell said this staged approach will ensure smooth implementation and manage the impact on HDFC Bank’s stock price and index replicability. The December 2023 and March 2024 hikes are contingent on HDFC Bank meeting the minimum 10% foreign ownership headroom eligibility.

As per FTSE rebalancing norms, HDFC Bank needs adequate foreign room headroom to qualify for inclusion in global indices. FTSE will evaluate the bank’s shares outstanding, free float market cap and foreign headroom for the upcoming September 2023 review.

As per livemint Based on data as of July 31, 2023, HDFC Bank currently has 7,544 million shares outstanding, 74% inevestability weight and 18.3% foreign headroom. This meets the minimum foreign headroom criteria, paving the way for the first phase increase in September.

HDFC Bank Weightage Increase – Positive Signals

Market experts say that this phased weightage increase over a 6-month period will significantly benefit HDFC Bank. The gradual schedule allows time for foreign investors to build adequate positions without excessive impact on the stock price.

It also enhances HDFC Bank’s visibility amongst global investors, as the weightage hikes coincide with FTSE index reviews when fund managers rebalance portfolios.

The increased weightage signals the strength of India’s banking and financial services sector and could attract greater foreign flows, as per analysts. It may also have a positive rub-off effect on banking, NBFC and insurance stocks.

HDFC Bank will need to proactively manage its foreign shareholding levels ahead of the reviews. Experts say adequate headroom is necessary for smooth implementation of the weightage hikes, given the heightened global interest in Indian financial stocks.

HDFC Bank Stock – What Should Investors Do?

For investors, market experts advise holding on to HDFC Bank shares at current levels. The stock is likely to see upside in the short term due to buoyancy ahead of the potential weightage increases.

Long-term investors can also consider accumulating HDFC Bank stock on market dips or corrections. Fundamentally, HDFC Bank remains a solid bet given its market leadership, extensive reach, strong asset base and growth levers post the merger.

In conclusion, the upcoming phased weightage rise provides a positive tailwind for HDFC Bank over the next 6-9 months. However, investors need to assess portfolio construction and risk management strategies to optimize returns from this opportunity.

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