HDFC twins tumble after MSCI review

HDFC Bank was down 4.42%, while HDFC was down 4.27%.

MSCI plans to include HDFC Bank in the large-cap segment of MSCI Global Standard Indexes with an adjustment factor of 0.5, causing concerns of potential outflows of $150-200 million instead of expected inflows. The media reported that if the adjustment factor had been 1, HDFC Bank would have seen an incremental inflow of around $3 billion.

HDFC Bank has received approval from the National Company Law Tribunal (NCLT) for its merger with Housing Development Finance Corporation (HDFC). This will be the largest amalgamation in Indian corporate history, resulting in a combined asset base of approximately Rs 18 lakh crore. The exchanges have already approved the merger.

HDFC Bank is subject to a Foreign Ownership Limit (FOL) of 74% and currently has foreign room below 15%. However, based on the latest available shareholding disclosure, the foreign room of the post-acquisition entity is expected to be slightly above 15%. According to the current MSCI methodology, if the foreign room falls below 15% in the next quarterly index review, the weighting of the merged entity would be reduced again.

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