Canada Pension Fund pares stake in Kotak Bank. Will its weight in MSCI go up?

As Canada Pension Fund is a FII (foreign institutional investor), investors are curious whether the stake sale means foreign room opening up and thus leading to higher weightage on MSCI

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About 3.4 crore shares of Kotak Mahindra Bank, amounting to 1.7 percent equity stake, changed hands on June 9. The block was worth Rs 6,336 crore, according to Bloomberg.

While the buyers and sellers were not known immediately, it was earlier reported that the Canada’s state-run Canada Pension Fund was looking to sell a 1.66 percent stake in the private lender.

Canada Pension Fund held 4.3 percent equity in Kotak Mahindra Bank as of March 2023 end.

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As Canada Pension Fund is an FII (foreign institutional investor), investors are curious whether the stake sale means foreign room opening up and thus leading to higher weightage on MSCI.

According to Nuvama Alternative Research’s Abhilash Pagaria, this is unlikely. “Post the May MSCI rejig, the FIF or the foreign inclusion factor is now 55 percent and FOL (foreign limit) in the stock is capped at 55 percent. So there is no scope of foreign headroom and hence no weight up,” he explained.

Foreign investors’ holding in Kotak Mahindra Bank already dropped to 41.22 percent in the March 2023 quarter, lower by 1.47 percentage points from December. Following this, MSCI had used an adjustment factor of 1 for calculating Kotak Bank’s weightage in its index versus 0.5 adjustment factor earlier.

In Q4, Kotak Mahindra Bank reported 26.3 percent year-on-year rise in its standalone net profit at Rs 3,495.6 crore while its net interest income (NII) jumped 35 percent YoY to Rs 6,102.6 crore.

The bank’s net NPA decreased to Rs 1,193.30 crore in Q4 vs Rs 1,736.71 crore in the year-ago period. In percentage terms, the net NPA improved further to 0.37 percent of net advances as against 0.64 percent in the corresponding quarter of FY22.

The stock has 24 Buy call, 15 Hold and 3 Sell calls on it. The consensus target price on the stock is Rs 2141, representing 14 percent upside from current levels.

At 9:45am on June 9, the stock was quoting at Rs 1,871.80, 0.7 percent from previous close.

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