Led by strong buying by foreign institutions, HDFC Bank on Friday became India’s second-most valuable company by market capitalisation at Rs 3,52,314 crore. In the valuation sweepstakes, TCS continues to hold on to its number one position with a market cap of Rs 474,508 crore, while Reliance Industries slipped to the third spot with a market cap of Rs 348,828 crore.
Shares of HDFC Bank hit a high of Rs 1,454/share on Friday as the Reserve Bank of India on Thursday had withdrawn the limit set on FIIs to acquire shares of HDFC Bank as the overall foreign shareholding had gone below the prescribed limit. Foreign shareholding in HDFC Bank dropped to 72 percent, thereby giving FIIs a chance to acquire a further 2 percent in the stock. The stock surged to its all-time high on opening and soon the limit was breached again.
Analysts, however, say that the since the stock is richly valued, domestic funds and the retail segment may view this as an opportunity to exit. Banking analysts expect the stock price to normalize in the days to come. HDFC Bank is the preferred pick of foreign institutional investors, as the bank has not been plagued by the problem of stressed assets. The other two private banks – ICICI Bank and Axis Bank -- have seen accretion of stressed assets.
At the day’s high, the stock was at 3.89x FY18 book value. Sustaining such valuations may not be easy for HDFC Bank despite its healthy balance sheet and track record.