Shares of HDFC Bank reached record high: At the end of the June 2024 quarter, Foreign Portfolio Investors' holdings in the private sector lender fell below 55%. As a result, shares of HDFC Bank surged 4% on the National Stock Exchange (NSE) and hit a record high of Rs 1,794. The bank has been able to fulfill the requirements for an increase in weight in the MSCI index thanks to this decrease in foreign ownership. The stock rose over its previous peak, which was reached on July 3, 2023, at Rs 1,757.50. HDFC Bank's share price has risen 6.5% over the last two days, recovering 23% from its June 4 low of Rs 1,454 last month.

While the Nifty 50 saw a 0.45 percent increase at 09:18 AM, HDFC Bank shares were trading over 3 percent higher at Rs 1,778.65. On the NSE and BSE, a total of 14 million shares had exchanged hands.

FPI holdings decreased from 55.54 percent at the end of the March 2024 quarter to 54.83 percent in the June quarter, according per HDFC Bank's exchange statement. The FPIs' ownership has decreased from 66 percent over the previous five quarters due to their persistent selling.

This is a significant achievement since, according to global index producer MSCI, a company must score over 55% to be fully included in its indices. MSCI has limited the weight of investments in its indexes due to insufficient capacity for growth.

At the moment, HDFC Bank represents 3.8% of the MSCI index's weight. According to ICICI Securities, there is potential for foreign ownership and an increase in the MSCI foreign inclusion factor from 50% to 100% might result in a passive inflow of $2.5 to 3.5 billion, which could function as a catalyst in the short term.

The next rebalancing update from MSCI is anticipated in the middle of August. According to market analysts, the stock is anticipated to rise even more in the lead-up to it. Given that HDFC Bank has the largest weight in the Sensex and Nifty, a possible increase in its stock price might also benefit the market as a whole.

Leading private sector bank HDFC Bank has demonstrated steady expansion and operational success over a number of cycles. With a broad portfolio, the bank has grown to be the second biggest in terms of size following the merger. The bank has continued to maintain exceptional return ratios, which has led to higher values.

The finest bank is HDFC Bank, which has demonstrated consistent growth and profitability for more than 20 years. It could take a few years for return ratios and loan growth to normalize, though, as a result of the merger. In a recent financial sector outlook study, analysts at CLSA stated that despite weaker profitability, valuations have decreased dramatically over the previous five years, indicating a reasonable risk-reward ratio.

The global brokerage company stated that the two main drivers of the stock will be an improvement in deposit accretion, particularly CASA deposits, and an increase in NIMs.