2 days ago
Active Mutual Funds Cut HDFC Bank Bets to Multi-Year Low
Many actively managed mutual funds have reduced how much HDFC Bank stock they own.
The bank’s share price has fallen sharply compared with the broader banking market.
Fund managers have pointed to weaker growth, lower profit margins and governance concerns.
They have also been uncertain about who will lead the bank after Sashidhar Jagdishan’s term ends on October 26.
However, mutual funds overall still own more than 30% of the bank.
This is partly because passive funds, such as index funds, have continued buying it.
Some value-focused fund managers still believe the bank is strong and are keeping larger holdings.
HDFC Bank’s lower share price has also made its valuation cheaper than some private-bank peers.
HDFC Bank’s average exposure in active large-cap funds fell to 7.2% in July 2026 from 9% a year earlier.
The bank’s stock declined 25% over the past year, while the Nifty Bank index gained 7%, allowing ICICI Bank to become the largest mutual-fund holding.
Active fund managers cited weak performance, soft margins, governance concerns and uncertainty over CEO Sashidhar Jagdishan’s succession.
Despite active-fund selling, total mutual-fund ownership exceeded 30% in June 2026, partly because of inflows into passive funds.
HDFC Bank trades at about 1.8 times price-to-book value, while its weighting in the Nifty 50 and Nifty Bank has also fallen.
- Who
- HDFC Bank, active mutual-fund managers, passive funds and investors, with Sashidhar Jagdishan’s leadership transition also affecting sentiment.
- What
- Active mutual funds have reduced their exposure to HDFC Bank to multi-year lows, even as total mutual-fund ownership has increased.
- Where
- The developments concern HDFC Bank and its holdings in Indian mutual funds and stock-market indices; a proposed securities lawsuit was filed in the United States.
- When
- The comparison covers July 2025 to July 2026; Jagdishan is scheduled to step down after his current tenure ends on October 26.
- Why
- Managers cited the bank’s weak stock performance, slower loan growth, soft margins, governance concerns, leadership uncertainty and continued foreign-investor selling.
Active-Fund Concerns
Value-Investor Defense
Investment exposure
Active-Fund Concerns
Most active funds have reduced HDFC Bank holdings or are underweight relative to their benchmarks because of weak performance, slower growth and uncertainty.
Value-Investor Defense
Some value-focused funds, including Parag Parikh Flexicap and HDFC Flexicap, remained overweight because they viewed the bank’s valuation and franchise as attractive.
Governance and leadership
Active-Fund Concerns
Managers have been concerned about governance issues, the resignation of part-time chairman Atanu Chakraborty, a deposit-arrangement review and uncertainty over the CEO’s succession.
Value-Investor Defense
Rajeev Thakkar said HDFC Bank has diversified ownership, Reserve Bank of India oversight and robust governance mechanisms, and that reported issues did not appear materially threatening to its franchise or customer base.
Overall ownership trend
Active-Fund Concerns
Active managers have reduced positions, with 259 of 321 diversified funds cutting HDFC Bank’s share of assets between July 2025 and July 2026.
Value-Investor Defense
Mutual funds overall remained net buyers, with total ownership exceeding 30%, likely supported by inflows into passive funds such as index funds.
Key facts
- Active large-cap exposure
- Average HDFC Bank exposure fell to 7.2% in July 2026 from 9% in July 2025.
- Flexicap exposure
- Average flexicap-fund exposure declined to 4.9% from 7.2% over the same period.
- Total mutual-fund ownership
- Mutual funds’ combined stake surpassed 30% in June 2026.
- One-year stock performance
- HDFC Bank shares fell 25% over the past year, while the Nifty Bank index rose 7%.
- Valuation
- The stock traded at approximately 1.8 times price-to-book value.
- Leadership
- Sashidhar Jagdishan said he would leave after his current managing-director and CEO term ends on October 26.
- Foreign ownership
- Foreign portfolio investor ownership fell from 60.4% in July 2023 to 49.9% in June 2026.
Quotes
Manish Bhandari
CEO and portfolio manager at Vallum Capital
“Some time back there was heat on us for owning ICICI Bank around the time of the ouster of the previous CEO. Now there is heat on us for owning HDFC Bank. These are institutions with close Reserve Bank of India's oversight, diversified ownership, and robust governance mechanisms. The issues reported so far in HDFC Bank, while not desirable, do not appear to be materially threatening to the franchise or the customer base. Overall, there is no change to the outlook for the basket of the four私ate?”
rediff.com
“HDFC Bank has suffered from two fundamental problems in the last three years. One is slower loan growth, resulting in declining market share to other private and public-sector banks. Second, the change in the rate cycle has hit private banks, more so HDFC Bank. In the absence of the tailwind of FII buying in financials, it has lost more value.”
rediff.com
Sources
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