Did Hedge Funds Get HDFC Bank Limited (HDB) Right?

Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards HDFC Bank Limited (NYSE:HDB) at the end of the third quarter and determine whether the smart money was really smart about this stock.

HDFC Bank Limited (NYSE:HDB) has experienced an increase in hedge fund sentiment in recent months. HDFC Bank Limited (NYSE:HDB) was in 40 hedge funds’ portfolios at the end of September. The all time high for this statistic is 42. There were 39 hedge funds in our database with HDB holdings at the end of June. Our calculations also showed that HDB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Keeping this in mind let’s take a peek at the fresh hedge fund action regarding HDFC Bank Limited (NYSE:HDB).

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

At the end of September, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from one quarter earlier. By comparison, 34 hedge funds held shares or bullish call options in HDB a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Among these funds, Fisher Asset Management held the most valuable stake in HDFC Bank Limited (NYSE:HDB), which was worth $371.3 million at the end of the third quarter. On the second spot was Impax Asset Management which amassed $309 million worth of shares. Two Creeks Capital Management, Steadfast Capital Management, and Viking Global 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 13.18% of its 13F portfolio. Blackcrane Capital is also relatively very bullish on the stock, setting aside 6.58 percent of its 13F equity portfolio to HDB.

Consequently, key hedge funds were breaking ground themselves. Viking Global, managed by Andreas Halvorsen, created the most outsized position in HDFC Bank Limited (NYSE:HDB). Viking Global had $122.7 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners also initiated a $10.2 million position during the quarter. The following funds were also among the new HDB investors: Simon Sadler’s Segantii Capital, James Chen’s Ovata Capital Management, and Renaissance Technologies.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as HDFC Bank Limited (NYSE:HDB) but similarly valued. These stocks are American Express Company (NYSE:AXP), Bristol Myers Squibb Company (NYSE:BMY), Starbucks Corporation (NASDAQ:SBUX), Raytheon Technologies Corp (NYSE:RTX), The Boeing Company (NYSE:BA), Union Pacific Corporation (NYSE:UNP), and BlackRock, Inc. (NYSE:BLK). This group of stocks’ market valuations resemble HDB’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 56.3 hedge funds with bullish positions and the average amount invested in these stocks was $6976 million. That figure was $1795 million in HDB’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand BlackRock, Inc. (NYSE:BLK) is the least popular one with only 44 bullish hedge fund positions. Compared to these stocks HDFC Bank Limited (NYSE:HDB) is even less popular than BLK. Our overall hedge fund sentiment score for HDB is 34.6. 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. Hedge funds dodged a bullet by taking a bearish stance towards HDB. Our calculations showed that the top 5 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 but managed to beat the market again by 3.6 percentage points. Unfortunately, HDB wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); HDB investors were disappointed as the stock returned -6.1% since the end of the third quarter (through 1/31) 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 all of these stocks already outperformed the market since 2019.

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