Active Funds Trim HDFC Bank Stake Amid Governance, CEO Concerns

Fund managers have been cutting their exposure to HDFC Bank. As of July 2026, only 22% of large-cap schemes held more of the stock than its 8.4% weight in the Nifty 100. Flexicap and large & midcap funds showed a similar trend, with just 32% and 36% of schemes, respectively, holding an overweight position.

HDFC Bank shares have had a difficult year, falling 25% over the past 12 months, while the Nifty Bank index gained 7%. The underperformance also cost HDFC Bank its position as the largest mutual fund holding. The bank had held the spot for three years before ICICI Bank overtook it in July.

Among 321 diversified schemes tracked between July 2025 and July 2026, 259 reduced their HDFC Bank holdings, while only 57 increased their exposure. ICICI Bank, meanwhile, saw 154 funds cut their holdings and 161 added to their positions.

Exposure Shrinking Across The Board

The retreat shows up clearly in the averages. Active largecap funds held 7.2% in HDFC Bank as of July 2026, down from 9% a year prior. Flexicap funds cut nearly 30% off their exposure, dropping to 4.9% from 7.2%. Across all diversified schemes, the average slid from 6% to 4.8%.

Governance Troubles Piling Up

Part of what's driving this is a stack of governance headaches. Part-time chairman Atanu Chakraborty resigned abruptly in March. A deposit arrangement with the Maharashtra State Road Development Corporation came under review. And now there's a US securities class-action lawsuit accusing the bank of misleading disclosures, something HDFC Bank denies.

Additionally, CEO Sashidhar Jagdishan confirmed he's stepping down once his term ends on 26 October, and market watchers expect the stock to stay choppy until a successor is named.

A Few Funds Still Betting On The Stock

Not all fund managers have cut their exposure. Parag Parikh Flexicap and HDFC Flexicap, both managing more than ₹1 trillion, remained overweight on HDFC Bank. Their holdings stood at 7.6% and 6.1%, respectively, against the Nifty 500’s 5.7% weight.

The correction has also brought down HDFC Bank’s price-to-book ratio to 1.8 times. That compares with 1.6 times for state-run State Bank of India (SBI).

Foreign investors have also reduced their holding in the bank. Their ownership fell from 60.4% in July 2023 to 49.9% in June 2026.

HDFC Bank’s profit grew 5% in the June quarter. However, its net interest margin stood at 3.26%, still below the pre-merger level of 4%.

At 10:32 AM on Monday, the HDFC Bank share price stood at ₹728.00, up 1.07%.

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