Were Hedge Funds Right About HDFC Bank Limited (HDB)?

Reymerlyn Martin
·6 min read

In this article we will check out the progression of hedge fund sentiment towards HDFC Bank Limited (NYSE:HDB) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

HDFC Bank Limited (NYSE:HDB) was in 42 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 41. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. HDB investors should be aware of an increase in hedge fund interest in recent months. There were 38 hedge funds in our database with HDB holdings at the end of March. Our calculations also showed that HDB isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

At the moment there are many tools stock traders can use to assess their stock investments. Some of the best tools are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can outperform the market by a superb amount (see the details here).

Ken Fisher FISHER ASSET MANAGEMENT
Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let's go over the key hedge fund action encompassing HDFC Bank Limited (NYSE:HDB).

What have hedge funds been doing with HDFC Bank Limited (NYSE:HDB)?

At Q2's end, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards HDB over the last 20 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Fisher Asset Management was the largest shareholder of HDFC Bank Limited (NYSE:HDB), with a stake worth $278.4 million reported as of the end of September. Trailing Fisher Asset Management was Two Creeks Capital Management, which amassed a stake valued at $219.5 million. Steadfast Capital Management, Impax Asset Management, and Route One Investment Company were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Two Creeks Capital Management allocated the biggest weight to HDFC Bank Limited (NYSE:HDB), around 15.31% of its 13F portfolio. Sloane Robinson Investment Management is also relatively very bullish on the stock, designating 5.77 percent of its 13F equity portfolio to HDB.

Now, some big names were leading the bulls' herd. Segantii Capital, managed by Simon Sadler, initiated the most outsized position in HDFC Bank Limited (NYSE:HDB). Segantii Capital had $23.1 million invested in the company at the end of the quarter. Craig Peskin and Peter Fleiss's Solel Partners also made a $13.6 million investment in the stock during the quarter. The following funds were also among the new HDB investors: Robert Pohly's Samlyn Capital, Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, and Hugh Sloane's Sloane Robinson Investment Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as HDFC Bank Limited (NYSE:HDB) but similarly valued. These stocks are Fidelity National Information Services Inc. (NYSE:FIS), BlackRock, Inc. (NYSE:BLK), Toronto-Dominion Bank (NYSE:TD), S&P Global Inc. (NYSE:SPGI), BP plc (NYSE:BP), Diageo plc (NYSE:DEO), and Intuit Inc. (NASDAQ:INTU). All of these stocks' market caps match HDB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FIS,111,8173639,6 BLK,37,702091,-1 TD,15,155444,-4 SPGI,71,3024689,-2 BP,27,736756,-4 DEO,20,653839,3 INTU,53,1735265,-1 Average,47.7,2168818,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 47.7 hedge funds with bullish positions and the average amount invested in these stocks was $2169 million. That figure was $1177 million in HDB's case. Fidelity National Information Services Inc. (NYSE:FIS) is the most popular stock in this table. On the other hand Toronto-Dominion Bank (NYSE:TD) is the least popular one with only 15 bullish hedge fund positions. HDFC Bank Limited (NYSE:HDB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HDB is 53.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and still beat the market by 21 percentage points. A small number of hedge funds were also right about betting on HDB as the stock returned 32.8% since the end of the second quarter (through 10/23) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.

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