HDFC Bank, HDFC Market Capitalisation Falls Nearly ₹88,000 Crore

The stocks of HDFC Bank and HDFC fell over 6%. Both companies witnessed a selloff on Friday. The merged HDFC entity could see $200 million outflow after MSCI tweak.

Shares of HDFC Bank and HDFC, two of India’s largest financial services firms, fell by more than 6% on May 5, 2023, resulting in a combined market capitalization decline of INR 87,945 crore ($11.8 billion). 

The drop was due to an announcement by MSCI, a leading index provider, that its anticipated change in the weightage of the merged entity would not be as favorable as expected. 

Instead of doubling the index weightage of the merged entity, MSCI chose to maintain its weightage, resulting in a potential outflow of up to $200 million.

MSCI’s decision to add HDFC Bank to the Large Cap Segment of MSCI Global Standard Indexes with a foreign inclusion factor (FIF) of 0.37 after applying an adjustment factor of 0.5 was contrary to the market’s expectation of an adjustment factor of 1x. 

This could cause foreign portfolio investor (FPI) outflows of up to $200 million, according to analysts at Nuvama Research.

Nuvama estimates that the foreign room for the merged entity is around 18%, which is above the 15% MSCI threshold required to maintain stock with full factor. 

However, the merged entity’s weighting will be reduced in the next quarterly index reviews if the foreign room falls below 15%, according to MSCI’s current methodology.

HDFC Bank’s management stated during its March-quarter earnings that the merger with HDFC is expected to be completed by July 2023, subject to regulatory approvals and shareholder confirmation. 

HDFC will merge into HDFC Bank. The merger has already received in-principle approvals from the Reserve Bank of India, the Securities and Exchange Board of India, the Competition Commission of India, and the National Company Law Tribunal, among others.

HDFC Bank’s March-quarter earnings met analyst expectations, and the next catalyst for the bank will be the merger. 

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The stock has seen fluctuating movements in 2023, with a 0.4% gain so far compared to a 0.1% decline in the Nifty Bank Index.