HDFC Bank Limited (HDB): Hedge Funds Are Snapping Up

In this article you are going to find out whether hedge funds think HDFC Bank Limited (NYSE:HDB) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is HDFC Bank Limited (NYSE:HDB) an attractive investment today? Investors who are in the know were getting more bullish. The number of long hedge fund bets went up by 12 recently. HDFC Bank Limited (NYSE:HDB) was in 39 hedge funds’ portfolios at the end of June. The all time high for this statistic is 42. Our calculations also showed that HDB isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Jeffrey Talpins of Element Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we’re going to review the latest hedge fund action regarding HDFC Bank Limited (NYSE:HDB).

Do Hedge Funds Think HDB Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 44% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in HDB over the last 24 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the biggest position in HDFC Bank Limited (NYSE:HDB). Fisher Asset Management has a $391.2 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is Impax Asset Management, led by Ian Simm, holding a $277.6 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish include Robert Pitts’s Steadfast Capital Management, Ryan Pedlow’s Two Creeks Capital Management and Rajiv Jain’s GQG Partners. 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 13.22% of its 13F portfolio. Solel Partners is also relatively very bullish on the stock, setting aside 5.31 percent of its 13F equity portfolio to HDB.

As industrywide interest jumped, some big names were breaking ground themselves. Element Capital Management, managed by Jeffrey Talpins, created the most valuable position in HDFC Bank Limited (NYSE:HDB). Element Capital Management had $32.6 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $24.2 million position during the quarter. The other funds with brand new HDB positions are D. E. Shaw’s D E Shaw, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as HDFC Bank Limited (NYSE:HDB) but similarly valued. These stocks are Intuit Inc. (NASDAQ:INTU), BlackRock, Inc. (NYSE:BLK), American Express Company (NYSE:AXP), Starbucks Corporation (NASDAQ:SBUX), Sanofi (NASDAQ:SNY), International Business Machines Corp. (NYSE:IBM), and Applied Materials, Inc. (NASDAQ:AMAT). This group of stocks’ market values match HDB’s market value.

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As you can see these stocks had an average of 51.1 hedge funds with bullish positions and the average amount invested in these stocks was $6759 million. That figure was $1732 million in HDB’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand Sanofi (NASDAQ:SNY) is the least popular one with only 16 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 58. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and surpassed the market again by 4.4 percentage points. Unfortunately HDB wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); HDB investors were disappointed as the stock returned -0.7% since the end of June (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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