Jagdishan takes over from Puri: A favourite pick, mutual funds bet Rs 78,597.2 crore on HDFC Bank

Sashidhar Jagdishan, who takes over as the managing director and chief executive officer of HDFC Bank, has some big shoes to fill. His predecessor,  Aditya Puri, who retired on October 26, leaves behind an impressive legacy, of having built the country’s largest private bank.

Puri, who took over as MD in September 1994, oversaw the bank’s listing on the Bombay Stock Exchange on May 19, 1995. On his watch, HDFC Bank crossed the market capitalisation of Rs 7 lakh crore. The stock has given a return of more than 30,000 percent—jumping from Rs 3 levels in 1995 to Rs 1,200 in 2020.

Today, HDFC Bank has the second-highest weightage in the Nifty50 and highest in the financial sector. The stock is also held by most mutual funds as well as FIIs, given its strong fundamentals and balance-sheet structure.

"Being a high-weightage stock in most benchmark indices and being the highest weight stock in the highest weight financial sector along with outperforming the peers in terms of balance-sheet structure and profitability, HDFC bank has been the favourite of most mutual fund schemes," Vineta Sharma, Head of Research at Narnolia Financial Advisors told Moneycontrol.

Mutual funds hold Rs 78,597.2 crore worth of HDFC Bank shares, while the lender’s market capitalisation stands at Rs 6.69 lakh crore, the third-highest after Reliance Industries and TCS.

Mutual funds hold more than 63.64 crore equity shares of HDFC Bank through 482 schemes, data with Morningstar shows. Of these, top 16 schemes, including from SBI, ICICI Prudential, UTI MF, Axis, Kotak, HDFC, Aditya and Mirae AMCs, hold 47 percent or nearly 30 crore shares from among total mutual funds' shareholding.

"Mutual funds are buying purely based on fundamentals and it is one of the best companies to have from the large company universe. Mutual funds prefer a company with stability and predictability, which the HDFC group provides," Jaikishan Parmar, Senior Equity Research Analyst at Angel Broking told Moneycontrol.

Puri and his team built a very strong fort and it is the outcome of years of effort and dedication, Parmar said, adding Jagdishan has been with the bank since 1996 and knows the business processes well and will only improve them.

SBI ETF Nifty 50 tops the list among mutual funds schemes, holding 6.71 crore shares of HDFC Bank followed by SBI ETF Sensex with 2.97 crore shares and SBI Bluechip Fund 1.94 crore shares.

ICICI Prudential Bluechip holds 1.69 crore shares followed by UTI Nifty ETF (1.64 crore shares) and Mirae Asset Large Cap Fund (1.62 crore shares).

Axis Bluechip Fund, SBI Equity Hybrid Fund, HDFC Hybrid Equity Fund, Kotak Standard Multicap Fund, Nippon India ETF Bank BeES, Axis Long Term Equity Fund, Aditya BSL Frontline Equity, Kotak Banking ETF, HDFC Top 100 Fund and ICICI Prudential Balanced Advantage own between 1 crore and 1.53 crore shares.

"Fund managers like HDFC Bank owing to (a) strong liability franchisee, (b) deepening presence in digital banking, (3) continuous decline cost to income ratio and target of 35 percent in 3 to 5 years, D) historical return on equity (RoE) greater than 15 percent, e) the bank has a provision that is higher than regulatory required which provides comfort against any asset quality shock," said Parmar.

HDFC Bank has consistently maintained its strong financial performance with stable asset quality, which helped it during crises also. It also reflected in its numbers. The stock has rallied 303-fold from the year 1995.

"Consistently performing better than peers in terms of growth and quality has earned HDFC Bank high valuation multiples by the market. We feel that the company, with its recent move towards tapping the rural and semi-urban market, can increase its market share further," Sharma said.

HDFC Bank's deposit share is 7 vis a vis SBI, which is 23 percent and with consistent efforts to tap the rural–semi urban opportunity, HDFC Bank balance sheet can double over the next six years, she said.