Shares of Kotak Mahindra Bank jumped 5.6 percent in early trades on Tuesday to reach an intraday high of ₹ 1859.00 apiece on the National Stock Exchange (NSE) after the reduction of FII stake in the bank raised expectations of $690 million inflows.
According to the shareholding pattern of Kotak Mahindra Bank, FIIs have reduced their stake in it from 42.06 percent in December 2021 to 39.26 percent in September 2022 and 39.24 percent in the December 2022 quarter. As a result of this decline, the foreign headroom is believed to have increased to 25.05 percent from 22.38 percent at the end of December.
According to MSCI guidelines, if a security’s foreign room is less than 25 percent and equal to or higher than 15 percent, then the MSCI uses an adjustment factor of 0.5 to reflect the actual level of foreign room. When it is more than 25 percent, an adjustment factor of 1 is used.
This decline could result in a wider foreign headroom opening up and the stock gaining weightage in the MSCI Index, according to analysts. Foreign room is basically the proportion of shares available to foreign investors, relative to the maximum allowed.
As Kotak Mahindra Bank’s adjustment factor goes from 0.5 to 1, its weight will increase the index. IIFL Securities has estimated $750 million worth of inflow to the lender, as a result.
At 11:35 AM, the private lender’s shares were trading at 1841.15, up 4.65 percent. The stock has been a laggard as it has gained merely 3.22 percent in the past year. However, analysts expect the MSCI liquidity event to lead to a strong momentum.
Kotak Mahindra Bank is a leading financial services group providing a wide range of banking and financial services. It is a large-cap blue-chip banking company with a market capitalization of ₹ 3,50,014 crores. Its shares were trading at a price-to-earnings ratio (P/E) of 24.51, which is almost three-fold the industry P/E, indicating that the stock might be overvalued as compared to its peers.
Written by Simran Bafna
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