Kotak Mahindra Bank may weigh heavier on MSCI as foreign holding dips to 41.22%

Kotak Bank’s foreign room is 22.38 percent. With the fall in foreign investors’ shareholding in the March quarter, the room has increased to 25.05 percent

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Foreign investors’ holding in Kotak Mahindra Bank has dropped to 41.22 percent in the March 2023 quarter, lower by 1.47 percentage points from December.

This could result in a wider foreign headroom opening up and the stock gaining weightage in the MSCI index, according to Nuvama Alternative Research. Foreign room is essentially the proportion of shares available to foreign investors relative to the maximum allowed. MSCI requires this to be at least 15 percent.

Kotak Bank’s foreign room is 22.38 percent. With the fall in foreign investors’ shareholding in the March quarter, the room has increased to 25.05 percent, as per Nuvama Research’s Abhilash Pagaria.

As per the MSCI guidelines, if a security’s foreign room is less than 25 percent and equal to or higher than 15 percent, then the index provider uses an adjustment factor of 0.5 to reflect the actual level of foreign room. When it is more than 25 percent, then adjustment factor of 1 is used.

As Kotak Bank’s adjustment factor goes from 0.5 to 1, its weight will increase in the index. “This could see weight-up led inflow to the tune of $690 million which is almost 32 million shares buying,” Pagaria said.

IIFL Securities has estimated $750-million inflow to the lender.

Also Read: Credit growth likely to remain strong in Q4, says Kotak Bank’s Shanti Ekambaram

On April 11, Kotak Mahindra Bank shares opened 4 percent higher on the NSE. The stock was quoting at Rs 1,842.55 at 9:20am. As the stock has been a laggard over the past one year, up only 3 percent, analysts expect the MSCI liquidity event to lead to a strong momentum.

In the third quarter, the bank beat Street estimates and delivered a 31 percent growth in net profit at Rs 2,792 crore. Its net interest income surged 30 percent to Rs 5,653 crore in the December quarter on the back of an on-year growth of 23 percent in loans and a spurt in net interest margin to 5.47 percent from 4.62 percent.

While earnings growth remains consistent, a key turnaround point for the bank will be when a new chief executive officer is selected. Uday Kotak has been at the helm of Kotak Mahindra Bank since it was founded in 1985 but he has to step down as CEO by next year in accordance with the RBI guidelines. His term ends on January 1, 2024.

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