There aren’t enough shares of HDFC Bank, IndusInd Bank and Kotak Bank that foreign investors can buy

There aren’t enough shares of HDFC Bank, IndusInd Bank and Kotak Bank that foreign investors can buy
HDFC Bank, IndusInd and Kotak Mahindra share price likely to take a hit as FTSE Global Equity Index kicks them from the rosterBCCL/BI India
  • HDFC Bank, IndusInd Bank and Kotak Mahindra Bank have been kicked off the global indices of FTSE Russell.
  • This means that starting 21 September, the shares of the three Indian banks will no longer show up as investment options for foreign investors looking to put their money on Indian stocks.
  • With less buyers on the platter for HDFC Bank, IndusInd and Kotak Mahindra — their share prices may take a hit when existing investors go to the market to sell.
The London-based FTSE Global Index will no longer list HDFC Bank, Kotak Mahindra Bank and IndusInd Bank on its indices. This means that there will be fewer buyers in the market, which could lead to their share prices taking a hit.

"HDFC Bank and Kotak Mahindra Bank will no longer be additions into FTSE Large Cap Index due to failing minimum foreign headroom requirement," said the filing by FTSE Russell. "IndusInd Bank will no longer be an additional into FTSE Mid Cap Index due to failing minimum headroom requirement," it added.

Before today, the share prices of all three banking stocks were on the rise. HDFC Bank was up by 2.6%, Kotak Mahindra Bank was in the green 6%, and IndusInd bank raced ahead with an uptake of 18% this week.

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There aren’t enough shares of HDFC Bank, IndusInd Bank and Kotak Bank that foreign investors can buy
HDFC Bank, Kotak Mahindra Bank and IndusInd Bank's share price over the last one weekBSE/BIIndia

However, when markets opened today, two out of the three were marginally in the red — Kotak Mahindra Bank and HDFC Bank — even though the FTSE changes won’t reflect until after markets close on September 18, starting on Monday 21 September.

Stock% change in share price
HDFC Bank-0.56%
Kotak Mahindra Bank-0.45%
IndusInd Bank2.86%
Source: Share price at 11:00 am compared to closing on August 27

According to the filing, FTSE Russell is kicking them off the roster since they failed to meet the minimum foreign headroom requirement. However, the company has said there is still room for a revision to take place before 4 September. If no objections are raised, the decision will be considered to be final as of 7 September.
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Since buying shares in HDFC Bank, Kotak Mahindra Bank and IndusInd Bank won’t even appear as an option on the indices, the pool of buyers — the level of demand — for the respective stocks will shrink. Less demand means lower prices when the shares are put up for sale.


And since the banks will be pulled from global indices, foreign operators that already have the banks’ shares within their portfolio will also look to get rid of them knowing that the price will take a hit.
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Earlier, after the foreign investment limits for publicly listed companies in India was increased, FTSE Russell had decided to increase the weight on the Indian companies on its global indices.

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