HDFC Bank shares drop over 3% amid MSCI weightage adjustment in two tranches

HDFC Bank share price drop: HDFC Bank, India's largest private sector lender, saw its shares drop by 2.22 per cent to an intraday low of Rs 1,613.55 on Tuesday. The decline comes after MSCI's latest announcement regarding the bank’s weightage increase in the MSCI Global Standard Index, which will now take place in two tranches instead of the single adjustment that the market had anticipated.

MSCI Weightage Adjustment

MSCI, a leading provider of global indices, announced that the weightage of HDFC Bank on the MSCI Global Standard Index will increase over two phases. The first adjustment will occur post the current index rebalancing, with the second tranche expected to be communicated during the next rejig in November, provided the Foreign Portfolio Investor (FPI) headroom remains above 20 per cent.

Nuvama Alternative and Quantitative Research has projected that the first tranche of the adjustment will result in inflows worth $1.8 billion for HDFC Bank. However, the split of the adjustment into two phases rather than one has caused some market uncertainty, leading to the recent dip in share price.

HDFC Bank shares had previously hit a record high of Rs 1,794 on July 3, following the disclosure of its shareholding pattern for the June quarter. The report revealed that FPI holdings had declined further compared to the March quarter, dropping to 54.83 per cent from 55.54 per cent. Of the total FPI holdings, 47.17 per cent is held in the Indian entity, a decrease from 47.83 per cent in the March quarter, with the remaining shares listed as American Depository Receipts (ADR) in the US.

The decline in FPI holdings below 55.5 per cent was a necessary condition for the bank's weightage increase in the MSCI indices. Analysts had initially predicted that this weightage increase could lead to potential inflows of up to $4 billion for HDFC Bank.

Since hitting its record high in early July, HDFC Bank's shares have fallen by 11 per cent, with the latest drop reflecting investor reactions to the phased MSCI adjustment. The market had largely expected a single adjustment, which would have potentially resulted in a more significant and immediate inflow, stabilising the stock price.

The phased approach to the MSCI weightage adjustment has introduced a degree of uncertainty among investors, leading to the recent sell-off. However, with the potential for significant inflows in the coming months, particularly with the second tranche in November, market sentiment around HDFC Bank shares could shift positively if the conditions for further weightage increases are met.