HDFC Bank alone accounted for over a fourth of the ₹1.41 trillion that foreign investors pulled out of India's secondary market in the March quarter, as the impact of the Iran war and the abrupt resignation of its part-time chairman haunted the country's largest private sector bank.
During the quarter, foreign portfolio investor (FPI) stake in HDFC Bank fell by 3.62 percentage points from the December quarter to 44.05%.
FPIs sold 479.45 million shares during this period, BSE data showed.
Based on HDFC Bank's ₹898.64 volume-weighted average price (VWaP) per share during the quarter, the total value of the cash stake sold during the quarter stands at ₹43,085 crore, according to Bloomberg data.
VWaP is the average price at which a security trades during a session, adjusted for volume. For instance, if you buy 20 shares of Company X for ₹100, 15 shares for ₹102 and 10 shares for ₹103 , the VWaP is ₹101.33 . This is different from the simple average of ₹101.66, which is the mean price traded over the day.
A share trading above its VWaP is considered a bullish indicator, and below it is seen as bearish.
Going by the average VWaP in HDFC Bank during the March quarter, the value of stake pared by FPIs— ₹43,085 crore—works out to a whopping 30% of FPIs' overall net cash market sales of ₹1.41 trillion during the quarter.
The impact of the 18 March exit of part-time chairman Atanu Chakraborty added to the downside pressure. While the share shed 26% during the quarter to end at ₹731.55 on the NSE, the bulk of the fall—17.6%—came during March, coinciding with the war and Chakraborty's departure citing "certain happenings and practices" not being "in congruence" with his "personal values and ethics."
In comparison, the 14-stock Bank Nifty sectoral index shed 15.62% to 50275.35 during the quarter and 16.94% in the last month alone , outperforming its biggest constituent.
However, the risk-reward ratio in the HDFC Bank counter has turned favourable after the stock's steep fall during the period, an analyst and a global financial services firm said.
In a report on 27 March, JP Morgan upgraded the bank to overweight from neutral, citing favourable risk-reward, pick-up in loan growth and improving deposit mobilization, among other factors.
"The stock has taken a hit from the broader market sell-off, with the decline accentuated by the recent resignation of the chairman. With valuations at their lowest since the merger (HDFC into the bank) and the core franchise strong, we believe the risk-reward has turned favourable," the global financial services firm said.
Independent market analyst Ambareesh Baliga agreed.
"FPIs in general have been selling EMs (emerging markets) for the safety of US dollar assets since the outbreak of the war. The high liquidity on the HDFC Bank counter, which is an FPI-heavy bank, induced heavy foreign investor outflows on account of the macro headwinds and the resignation episode. That said, the valuation now looks attractive from a long-term perspective and investors holding the stock could consider bottom-fishing at or around current levels," Baliga said.