LIC gets a green signal to raise stake in HDFC Bank: Can this help boost investor sentiment in the lender’s stock?

The largest insurance business in India, LIC, has received approval from the Reserve Bank of India (RBI) to purchase up to a 9.99% share in the country’s largest private sector bank.

In its exchange statement, HDFC Bank stated that the permission was given with regard to the application that LIC submitted to RBI. The approval granted by RBI is subject to the conditions.

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Also Read: LIC gets RBI nod to raise HDFC Bank stake to 9.99%

“LIC has been advised by RBI to acquire the aforesaid major shareholding in the Bank within a period of one year i.e. by January 24, 2025. Further, LIC must ensure that the aggregate holding in the Bank does not exceed 9.99% of the paid-up share capital or voting rights of the Bank at all times,” said the private lender in its filing.

No penalty will be imposed on LIC if they do not increase their stake to 9.99%. It is not that they must increase their stake upto the said limit. However, 9.99% should be the maximum, experts pointed out.

As on December 2023, LIC holds 5.19% stake in HDFC Bank, as per data available on the BSE. 

Also Read: Also Read: How does Indian market stack up against Asian peers when it comes to recent correction?

HDFC Bank share price

HDFC Bank has had the worst decline since COVID-19, mostly as a result of its dismal Q3 results, which negatively impacted sentiment overall. 

HDFC Bank reported its December quarter figures (Q3FY24) on Tuesday, January 16, however its deposit and liquidity measures fell short of street estimates. The NIMs have been affected by constrained liquidity and rising funding expenses. The market was hit by the loss in HDFC Bank shares, which led to a significant drop in the Nifty 50 and Sensex. After HDFC Bank released its Q3 earnings, the company’s shares fell 15% in five straight sessions. 

Also Read: HDFC Bank Q3 Results Highlights: Net profit rises 33% to ₹16,372 crore, NII up 24% YoY

Investors and market participants wonder if the RBI’s approval for LIC to purchase HDFC Bank shares up to 9.99% will improve the outlook for the stock starting on Monday. Now let’s see what the analysts have to say.

On Thursday, HDFC Bank share price ended 1.41% lower at ₹1,435.30 apiece on BSE.

Here’s what experts say 

Mohit Gulati, CIO & Managing Partner of ITI Growth Opportunities Fund thinks this is fantastic news for HDFC stockholders. Although the stock has suffered and is almost at a 52-week low, the company is one of few private lenders that has endured throughout time. The results were, of course, well below expectations. LIC is unquestionably a sentimental booster, believes Gulati. 

Further, Mohit thinks the downside for the stock is somewhere very close right now, so we could see it bounce back.

Adding to this, Arun Kejriwal, founder of Kejriwal Research and Investment Services highlighted that since this permission is only valid for one calendar year, anyone expecting LIC to purchase HDFC Bank tomorrow is not going to be disappointed. 

Also Read: HDFC Bank, ICICI, Axis, Kotak Bank shares volatile as Q3 results reflect margin pressures; here’s why banks are falling

When there is panic in the market for HDFC Bank shares, LIC will intervene and make its customary small-lot purchases. Therefore, it won’t be the case if the market anticipates that HDFC Bank’s worst is behind us. Thus, HDFC Bank shares might become stable in anticipation of the LIC purchase. The downward pressure that is being witnessed may not happen. That is on the positive side for the market, explained Arun Kejriwal.

Another event that is somewhat related to this is the deadline for foreign portfolio investments (FPIs), for which adequate disclosures of holdings are required to liquidate such holdings within the following seven months, as per Securities and Exchange Board of India (SEBI). So whenever that selling happens in the market and the price goes down, that is when LIC will step in and add shares, added Kejriwal .

So as per the recent update, if offshore funds don’t reveal investor information by January 29th, SEBI has given them another seven months to to liquidate holdings.

“LIC buying in HDFC Bank is good news for the markets as it will absorb the free float created from the aggressive selling by FPIs,” said Vinit Bolinjkar, Head of Research, Ventura Securities.

Also Read: Relief finally: SEBI lifts the FPI disclosure overhang on market 

According to Avinash Gorakshakar, Head of Research at Profitmart Securities, this news will partly boost market sentiment for HDFC Bank, but longer-term, unless the bank delivers on the numbers, the long-term upside will take time.

“While LIC comes to the rescue and supports the selling pressure in HDFC Bank, this news would bring some kind of sentiment relief to the long-term investors in the counter. Technically, a Monthly Anchor VWAP shows 1,390 to 1,420 would be a good value-buying zone for the stock. The downside seems limited from here,” advised Prashanth Tapse, Research Analyst, Senior Vice President of Research at Mehta Equities.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.

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Published: 26 Jan 2024, 04:08 PM IST