HDFC Bank shares will be in the limelight today as the foreign institutional investor holding in the stock has fallen to 54.83 percent at the end of the June quarter. Now why is this important? Because HDFC Bank’s weightage in the MSCI index is set to increase as there is now more headroom for FIIs to buy stock. Put simply, if FIIs have the room to buy another 25 percent or more in stock within the RBI limit, the entire free float is considered while assigning weightage to the stock. When HDFC Bank’s weightage in MSCI goes up, passive funds will start buying. According to Nuvama, HDFC Bank could see inflows worth $3-4 billion between now and the end of August. In late May, Macquarie predicted as much as $5.2 billion of inflows for the same reason.

HDFC Bank shares rose around 17 percent in June, indicating that a section of the market would already have been betting on a drop in FII holding.

Remember, sustained selling by actively managed foreign funds has been the prime reason for HDFC Bank’s underperformance over the last many months. The operating performance is not in doubt, but word on the street is that a lot of foreign funds are upset at how the merger with HDFC was done, and also the subsequent management communication.

The question now is: will the huge buying by passive funds then drive a rating as money managers of large-cap funds would not want to risk underperformance by missing out on the rally?

Last year in July, short Call posed a question to mutual funds guru Dhirendra Kumar of Value Research: If money simply kept flowing into passively managed funds, how would fundamentals ever matter? Because there would be a self-fulfilling prophecy of inflows lifting the prices of the stocks in that index, which in turn would attract more inflows into the fund.

This is what he had to say:

“In theory, the game should go on forever as people keep buying even the stupid stocks. But so far, it has not happened that way. The reason is that even if a quarter of the money is in actively managed funds, that money sets the pricing. Passive funds have to follow that. Look at the HDFC Bank and HDFC stocks, they have not gone up in the last two-and-a-half years despite being part of the major indexes. Within the universe there is a prioritization, there is something set outside of the index.”

An interesting tug-of-war between active and passive fund managers is on the cards.

Hiring trends:

Info Edge’s Jobspeak Index for June shows that hiring activity remained muted, and hiring trends slipped to a 6-month low. For June, the hiring trend is down 8 percent month-on-month and year-on-year. IT/software hiring was down 5 percent YoY in June.

This could mean that investors may have to temper their optimism on IT stocks.

IEX (Rs 185, -2.3%)

Released its business update for June

Bull case: Robust growth in total electricity volume, green market volume, day-ahead market (dam) volume, and real-time electricity market volume over the same period last year. The market coupling proposal may not go through because of the challenges in implementation

Bear case: Regulatory uncertainty may hold back investors from putting in big money. Earnings growth is lackluster over the last two years.

Coal India (Rs 480, 1%)

June quarter coal production up 8 percent to 189.3 million tonnes

Bull Case: All its subsidiaries posted production growth with five of them surpassing their respective targets for Q1FY25. Despatches and average realization are expected to be ahead of Q1FY25 estimates.

Bear Case: Coal India's supplies to the power sector have ebbed due to sufficient stocks at power plants and that could likely affect the company.

Safari Industries (Rs 2,166, 3.42%)

Announced capacity expansion plans

Bull case: With the planned expansion of 1 lakh pieces per month, total capacity will rise to 7 lakh pieces per month. A positive outlook on hospitality, travel, and tourism industries to result in increased demand for luggage makers.

Bear case: Delay in capacity. Demand weakness coupled with lower travel trends could also be a major headwind for the stock's growth journey.

Marico (Rs 604, -2. 6%)

Fell after CLSA's cautious outlook

Bear case: Rising competition in urban areas for its oil and oats portfolio, narrowing headroom for growth, according to CLSA.

Bull case: Green shoots of recovery in rural consumption may help improve volume growth. Stock valuations are reasonable compared to industry peers.