China's Central Bank Buys 1% Stake in Indian HDFC Bank's Holding Company

The People's Bank of China (PBOC) has bought a 1.01% stake in Indian major finance conglomerate HDFC Ltd on behalf of the Chinese Sovereign Wealth Fund SAFE, according to the shareholding disclosures for the March quarter.

Still, in line with overall bearish Equity Markets globally, the share price of HDFC ended 2.8% lower on April 13th, after PBOC had bought a stake in the firm. So far this year, HDFC shares fell nearly 40% from a high of Rs 2,493 to a low of Rs 1,499 last week.

PBOC now holds 1.75 crore shares of India's biggest housing mortgage lender HDFC. Alongside the Invesco Oppenheimer Developing Markets Fund and the Government of Singapore, the Chinese central bank belongs to the foreign portfolio investors (FPIs) that held significant size of shares in HDFC during the January to March quarter of financial year 2019/2020.

HDFC owns a 19.43% stake in HDFC Bank and 52.7% in HDFC Asset Management Company and 51.45% in HDF Life Insurance Company. HDFC Bank, in turn, owns a 96% in HDB Financial Services and 98% in HDFC Securities, according to the sources.

A person familiar with the matter, who prefers to remain unnamed, sees this as an interesting move in light of the news that Indian banks will be allowed to trade NDFs going forward, which wasn't allowed to them previously.

"I wouldn't be surprised to see PBOC/SAFE using HDFC as a proxy to trade USD/INR NDFs going forward", the person stated.

Valuation slump of local firms due to Covid-19

Indian news sources had reported in early April that China-backed funds are seeking to buy Indian financial assets after the Covid-19 outbreak caused a major slump in the valuation of local companies.

At least two big-ticket funds, Industrial and Commercial Bank of China (ICBC) and China Investment Corporation (CIC), have asked bankers to scout for good investment opportunities in the financial services sector, according to the news sources. These funds put together are looking to deploy around $600-650 million through the purchases.

The Indian unit of ICBC set up a $200 million fund for investing in the promising Indian micro, small and medium enterprises and ventures in November 2018. Since then, they have been buying stakes in some of the smaller Indian companies.