UBS Forecasts $3.5 Billion Inflows for HDFC Bank in August MSCI India Index Rebalancing

Analysts at the global financial services firm UBS have forecasted a substantial inflow for HDFC Bank in the upcoming MSCI India index rebalancing scheduled for August. Their analysis suggests that the weight could usher in inflows ranging from $3 billion to $3.5 billion for the leading private-sector bank.

Lower Estimates Compared to Previous Predictions

UBS's projections, however, are relatively tempered compared to an earlier prediction by Macquarie. Moneycontrol had previously reported that Macquarie anticipated HDFC Bank's weight in the MSCI India index to double, potentially attracting passive buying of $5.2 billion or 281 million shares into the stock.

Additional Inflows from Index-Tracking Funds

Complementing the direct impact of the index rebalancing, UBS also expects an additional $2.5 billion to $3 billion of buying from other funds with index-tracking characteristics. The brokerage firm believes that a staggered increase in HDFC Bank's weight will make this inclusion a non-event, minimizing market disruptions.

MSCI Index Weight Calculations

MSCI index weights are calculated based on the free-float adjusted market cap available for foreign investors' investment. As of March 2024, the investment headroom for foreign portfolio investors in HDFC Bank was 24.95 percent, narrowly missing the threshold required for MSCI to increase its weight to full weight.

Stock Performance and Valuations

So far this year, shares of HDFC Bank have underperformed the broader market, tumbling over 9 percent, while the benchmark Nifty 50 index has risen 4 percent. The stock hit a 52-week high of ₹1,757 per share on July 3, 2023, and a 52-week low of ₹1,363 on February 14, 2024.

The anticipated inflows from the MSCI India index rebalancing are expected to boost HDFC Bank's stock, potentially unlocking value and attracting further investor interest in the banking heavyweight.