How HDFC Bank May Take Sensex, Nifty To Fresh Record Rally Ahead? The Reason Could Be MSCI's August Rejig

India's largest bank in terms of market value, HDFC Bank has been on a roller coaster ride since the start of 2024. Disheartened by the last quarter of FY24, HDFC Bank witnessed a frenzy of selling. However, past month, HDFC Bank has witnessed a major turnaround with its stock price and ADR rising between 9-14%. There is a possibility that bearish days for HDFC Bank are over, and chances are that this private banking stock may as well have the potential to take Sensex and Nifty on a new record rally ahead!

As per brokerage Nuvama, owing to the June 2024 quarter shareholding of HDFC Bank, the weightage of the private bank is likely to nearly double at the MSCI Global Standard index during its August review.

Nuvama believes that HDFC Bank's weightage at MSCI could rise to 7.2-7.5% from the current level of 3.8%. This could lead to an inflow of $3.2 billion to $4 billion.

MSCI will likely announce its indices rejig somewhere around the first two weeks of August.

If HDFC Bank's weightage doubles at MSCI, Nuvama believes this could lead to a bull run in the private bank and further give a boost to the Sensex and Nifty or overall market.

Nuvama's statement comes after the latest shareholding pattern which HDFC Bank updated for June 2024 quarter. Nuvama takes note that the foreign investors in HDFC Bank favoured the stock with 25.9% headroom against the requirement of 25%, which indicates a potential surge in weightage at MSCI.

Currently, HDFC Bank has the highest weightage at Nifty 50 with 11.95%, followed by Reliance Industries and ICICI Bank with 9.98% and 7.95% weightage.

While at Sensex, HDFC Bank is the second largest stock with a weightage of between 9.5-10%, following Reliance which is at the top with a weightage of 13.4%.

In the early trade of July 3, HDFC Bank share price touched a new 52-week high of Rs 1,791.90 apiece. At the time of writing, the stock traded at Rs 1770.20 apiece, up by 2.31% with market cap of Rs 13,46,637.65 crore.

HDFC Bank is the top gainer of Sensex and Nifty who also recorded new lifetime high of 80039.22 and 24,292.15 respectively on Wednesday as well.

For Wednesday's performance, Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, "The focus of market activity today will be HDFC Bank which will continue its upward move factoring in the news of potentially increasing the weightage of the stock in the MSCI Index. The delivery based buying in the stock witnessed in the last many days has the potential to continue for a few more days pushing the stock further up and imparting resilience to it. As the weightage of HDFC Bank in Nifty increases there will be more delivery based buying by ETFs and also active funds. There can be a marginal negative impact on other high weightage stocks in the Nifty like RIL, TCS, Infosys and ICICI Bank."

In a month, HDFC Bank's stock surged by nearly 14, while its American depositary receipts gained by over 9%.

The latest shareholding data of HDFC Bank showed that FPI holding declined to 47.17% in the June 2024 quarter, compared to 47.38% in the March 2024 quarter. On the other hand, mutual funds holding surged to 24.83% in the June quarter as against 23.17% in the preceding quarter.

Global brokerages are optimistic about HDFC Bank and have recommended BUY as well.

UBS recommends BUY with a target price of Rs 1,900 per share, while Jefferies recommends the same but with a target price of Rs 1,880 per share. Both brokerages have a positive outlook.

Earlier, on the valuation, CLSA said, "We value the lending business using a long-term residual income model till FY40. We use a cost of equity of 12.8% and an average RoE over FY25-40 of 16%. In addition to the lending business, we value the subsidiaries based on our target prices (for the listed subsidiaries)." Further, JM Financial has set a 12-month target price of Rs 2,010 with a BUY recommendation.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.