HDFC Bank Stock At Record High | What's Driving The Rally?

Indian markets achieved yet another historical feat on July 3rd with the 30-share Sensex scaling past the 80,000 milestone for the first time.

The benchmark index has now rallied over 4% in the last one month and has jumped a whopping 10,000 points from the recent swing low hit on counting day.

So what's driving the markets? Well there are multiple factors including a broader rally in global equities, strong macroeconmic data, the return of foreign institutional investors and more.

But one factor that has probably fallen under the radar is the steady rise in shares of India's largest private lender - HDFC Bank

Shares of HDFC Bank which have underperformed the broader market since its merger with Housing Development Finance Corporation or HDFC back in July 2023, recently hit a record high.

The stock has rallied about 13% in the past one month, outperforming both Nifty and Nifty Bank that have delivered returns of about 4% each in the same time period.

There recent surge is on the back of expectations that the private lender's weightage in the MSCI Emerging Markets Index will likely in the coming days.

MSCI Emerging Markets Index is a stock market index that tracks the performance of large- and mid-cap stocks across 24 emerging market countries. It is widely used as a benchmark for international investment funds focusing on developing economies.

Recent shareholding pattern indicates that FII holding in HDFC Bank has dropped below 55%, which gives FIIs greater room to buy the stock, potentially leading to billions of dollars in passive inflow.

FII ownership in HDFC Bank was 54.8% at the end of June. This is below the 55% threshold.

When foreign investors own less than 55% of HDFC Bank, it creates more space for additional foreign investment. This extra space means the bank's stock can be fully valued in the MSCI index, which could attract more investors and potentially increase the stock's price.

At present, HDFC Bank’s weight in the MSCI EM Index is approximately 3.8%.

Post the rejig in August this year, that weightage may jump to anywhere between 7.2% to 7.5%, potentially bringing in inflows between $3.2 billion to $4 billion across six days.

According to analyst, the current rally in the stock is just the beginning of a marathon run. They expect a 50-60% upside in HDFC Bank over the next two years.

The stock has also witnessed a golden cross formation on price charts which is a bullish breakout indicator. This could potentially take it past the Rs 2,000 mark in the near term.

But wait there is more..the rally in HDFC Bank will also benefit the broader markets it has the highest weightage on both Nifty and Sensex among all constituent stocks.

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