Stance taken by the foreign portfolio investors (FPIs) on the stocks of HDFC twins - HDFC Bank and HDFC - has changed drastically in the 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 as we had told you a few weeks back.
Going by the swap ratios put out on Monday, 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.
However, here’s the catch.
HDFC Bank isn’t a part of the MSCI Index. Owing to high FPI holding in HDFC Limited, which is presently the parent company of the bank, India’s Foreign Investment Promotion Board has been very hesitant in allowing higher FPI holding in the bank. For the bank stock’s inclusion in the MSCI index, FPIs need a minimum 15 per cent ownership buffer in the stock (as per MSCI internal guidelines). With 10 per cent being the cap on single FPI ownership in a stock (as per latest SEBI rules) it is unlikely that the HDFC Bank stock forms part of the MSCI Index, given that there is only 8 per cent additional FPI limit likely available, post the merger.
Therefore, expect the selling pressure on HDFC twins to remain elevated till the merger concludes as investors rebalance their holdings.