THE SMART INVESTOR

Less than 14 million shares bought as against room for 43.6 million; stock closes 3% lower

HDFC Bank shares slip as FPIs go slow

Contrary to market expectations, foreign portfolio investors (FPIs) showed little appetite on Monday for shares of the country’s highest valued lender, HDFC Bank, even as the window for more buying of its stock opened after more than a year.

The earlier occasion when the FPI window had opened in February 2017, there was huge rush to buy the stock. On Monday, according to data from the stock exchanges, only 14 million shares of the private sector lender were earmarked for delivery; there was room to buy 43.6 mn. Assuming all the delivery-based buying took place by FPIs, this was still less than a third of what was available.

This lukewarm demand saw the stock end three per cent lower at ~2,047, compared to the previous close of ~2,110. From the day’s high of ~2,170, the stock fell nearly six per cent.

In value terms, shares worth ~90 billion were available for buying but there was demand for only ~30 billion.

Market players had built up huge long positions in the stock, in anticipation that FPIs would scramble to buy shares, pushing up prices. Most traders were caught on the wrong foot as the demand fell short of supply, forcing many to cut their long positions.

Experts say the tepid demand from FPIs was on account of the new rules which also force them to divest excess holding in case of a breach of the cumulative legal shareholding limit. Also, the bank's shares had run up nine per cent in the past fortnight, in the run-up to the opening of the FPI buying window.

A total of 23 mn shares of HDFC Bank changed hands on the NSE and BSE exchanges on Monday, of which delivery volume was around 61 per cent. Average delivery-based volume for the stock has been about 50 per cent for the past month.

“Several domestic investors who purchased the stock in the past 10 days were looking to book profit by selling at a higher price today. However, they were trapped, since the FPI interest was not as anticipated. Further, investors who were long on the HDFC Bank stock were also forced to cut their losses, since the stock showed strong downward bias,” said a dealer who works for a foreign brokerage.

Market participants say FPIs are in a risk-off mode currently, which could have led to the weak demand. Since May, foreign investors have pulled out nearly $1.5 billion (around ~102 bn) from domestic stocks. “Currently, there is a general reluctance on the part of FPIs to take fresh exposure to India, given the global situation. Also, the HDFC Bank stock is already commanding a huge premium,”said Deven Choksey, managing director, KR Choksey Investment Managers.

Market players now think FPIs will spread their buying across many days, instead of going all out on the first day, to ensure the price does not escalate. As mentioned earlier, the new rules say if the cumulative holding breaches the ceiling, they will be forced to divest in days, forcing them to book a loss.

The FPI buying window will remain open until their shareholding once again reaches 74 per cent. On Friday, it stood at 72.3 per cent, which would have now increased to 72.9 per cent, by a rough calculation.