When Sashidhar Jagdishan steps down as managing director and chief executive on 26 October, he will leave behind a markedly different shareholder register at HDFC Bank. Domestic mutual funds more than doubled their stake during his tenure, even as the lender's stock underperformed most of its banking peers.
Between 26 October 2020, the last trading day before Jagdishan took charge, and 31 August 2026, HDFC Bank's adjusted share price grew by just 17%, according to a Mint analysis of ACE Equity data.
By comparison, 20 private-sector banks delivered a median return of 148%, while 12 public-sector banks delivered a 374% median return. On an absolute basis, the Nifty Private Bank index gained 110%, while the Nifty PSU Bank index surged 560% over this period. HDFC Bank delivered the second-lowest return among the 32 banks studied, beating only Bandhan Bank, which saw its shares fall 45%.
On Tuesday, HDFC Bank shares recovered from a one-year intraday low of ₹698.50 to close nearly unchanged at ₹711.9 on the BSE.
The muted performance of HDFC Bank stock stands in sharp contrast to its steady accumulation by domestic institutions. Mutual funds held 30.62% of HDFC Bank at the end of June 2026, up 17.26 percentage points from 13.36% in December 2020—the first quarterly disclosure after Jagdishan took charge. It was the third-largest increase among the sample of banks, behind Ujjivan Small Finance Bank’s 28-percentage-point rise and IndusInd Bank’s 21-percentage-point increase.
Foreign portfolio investors’ stake rose by a much smaller 2.47 percentage points, from 39.35% to 41.82%, while the share held by retail investors (Individual investors with nominal share capital of up to ₹1 lakh) increased from 9.19% to 10.32%.
“The relationship between share-price performance and institutional ownership isn’t always linear, and HDFC Bank’s case illustrates why,” said Rajesh Singla, chief executive and fund manager at Alpha AMC.
Singla said much of the increase in mutual-fund ownership must be viewed alongside the bank’s merger with HDFC Ltd, which mechanically reshaped the shareholder base and attracted index-linked and passive flows because of HDFC Bank’s benchmark weight. Active fund managers, however, also accumulated the stock based on its asset quality, deposit franchise and medium-term earnings potential.
“The underperformance relative to peers largely reflects the market digesting an extraordinarily large merger, along with the margin and growth normalisation that came with it, rather than a reassessment of the franchise,” Singla said.
Merger reshaped ownership
The merger, which took effect on 1 July 2023, gave HDFC Ltd shareholders 42 HDFC Bank shares for every 25 shares held in the mortgage lender, bringing a large new pool of investors onto the bank’s register.
Foreign ownership jumped from 33.36% in June 2023, immediately before the merger, to 52.11% in September 2023, the first quarter-end disclosure following the transaction. Mutual-fund ownership rose from 17.60% to 19.71%, while retail ownership increased from 10.19% to 11.47%.
The direction changed subsequently. Between September 2023 and June 2026, FPI ownership fell 10.29 percentage points to 41.82%, mutual funds increased their stake by 10.91 percentage points to 30.62%, while retail ownership declined by 1.15 percentage points to 10.32%.
Thus, the modest increase in foreign ownership over Jagdishan’s full tenure masks a sustained post-merger decline in FPI exposure, with domestic mutual funds largely filling the gap.
Singla cautioned against viewing this solely as a foreign investor verdict on HDFC Bank. Several large financial stocks have experienced similar shifts because of changes in global emerging-market allocations and broader FPI positioning. In HDFC Bank’s case, the additional supply of shares created by the merger also played a role.
Prasenjit Paul, equity research analyst at Paul Asset and fund manager at 129 Wealth Fund, said the divergence reflected different investment horizons. The rise in mutual-fund ownership partly resulted from the merger and higher index weight, but also showed that domestic institutions were willing to take a longer-term view of the bank’s franchise and earnings potential, he said.
“The fall in FPI ownership suggests foreign investors are waiting for clearer evidence that post-merger pressures on growth and profitability are easing,” Paul added.
Domestic funds pile into banks
Mutual-fund accumulation was not restricted to HDFC Bank. Fund ownership increased in 90% of the 20 private-sector banks between December 2020 and June 2026, declined in 5%, and remained unchanged in the rest.
Foreign investors raised their holdings in 60% of private banks and reduced them in 35%, while retail ownership increased in 45% and declined in 55%.
The trend was even more pronounced among public-sector lenders. Mutual-fund ownership increased in all 12 public-sector banks, while FPI holdings rose in 92% and declined in 8%. Retail investors moved in the opposite direction, reducing their stakes in 58% of these banks and raising them in 42%.
What the next CEO must deliver
Jefferies expects the leadership transition to weigh on HDFC Bank’s near-term revenue momentum, particularly deposit mobilisation and fee income. The brokerage cut its FY27-FY29 earnings estimates by 3% each and reduced its price target from ₹1,050 to ₹880, saying the uncertainty could raise the cost of equity and weigh on valuations. It nevertheless retained its ‘buy’ rating, citing balanced risk-reward after the stock fell more than 27% in 2026, and limited risk to asset quality.
According to Paul, the next CEO must improve deposit growth, lift return ratios and demonstrate consistent execution. A meaningful recovery in earnings growth could then help restore confidence among foreign investors.