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A large number of traders were betting against HDFC Bank even before the US-Israel-Iran war and the sudden resignation of chairman Atanu Chakraborty, with open positions in the stock’s active futures contracts hitting record highs, according to Bloomberg data.

Usually, such a heavy buildup of short bets can trigger a bounce through short covering. But analysts are sceptical that this will happen in the HDFC Bank stock, as persistent selling by foreign investors, who are underweight India, could limit any rebound.

FPIs held 47.67% of the bank's equity capital as of the December quarter ending, according to data from National Stock Exchange of India.

Since foreign portfolio investors (FPIs) have been selling Indian equities for the past two fiscal years—nearly $30 billion to date, according to data from National Securities Depository Ltd (NSDL)—analysts expect the correction to persist.

The stock, whose market capitalization plummeted overnight by ₹69,000 crore after it plumbed 5.3% to ₹798.2 on Thursday, saw open positions of its active futures contract rise to a record high of 497,000 contracts on 25 February from 24,188 contracts at the expiry of the February series of derivatives a day earlier.

The positions rose further and, on Thursday, stood at 509,004 contracts, up by 38,126, after the sudden resignation of Chakraborty, who cited issues within the bank over the past two years that conflicted with his personal values.

As the rise in open positions has been accompanied by a 12% decline in the underlying share price to ₹798.2 since 24 February, the buildup is seen as bearish.

"Shorts are likely to have been driven by foreign investors who are the single-largest category of shareholders in the bank, post the latest trigger," said Rajesh Palviya, head of research (derivatives and technical), Axis Securities Ltd.

Palviya added that he didn't expect the share to rebound despite the record-high shorts, as FPIs would continue to sell stocks they hold large chunks of as part of "a larger India sell trade".

“The chair had every opportunity to bring to the notice of the board, as its head, any issue that conflicted with his ethics. Had he done so, he should have provided proof of the same. How can he just walk away by making allegations and crashing the stock price,” Rajesh Baheti, director at stockbroker Crosseas Capital, said on the impact of Chakraborty's abrupt departure.

Baheti also expects the volatility to persist at the HDFC stock counter.

Options data indicates the stock could trade over an 8% range from ₹765-835 through March.

Volumes on the HDFC counter hit a 16-month high of ₹14,340 crore on Thursday, corresponding to roughly 12% of NSE and BSE total traded volumes of ₹1.2 trillion, according to Bloomberg data.

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