Merged HDFC Firm Could Witness $200 Million Outflow Post MSCI Tweak

The merged entity of HDFC Bank could see outflows of $150-200 million following inclusion in the MSCI largecap index.

Besides Street’s hope for HDFC’s merged entity wanting double the current weight in MSCI, it tweaked the adjustment factor on May 5, showing the weight will remain more or less the same.

Edelweiss Researcher Abhilash Pagaria said that the adjustment factor for computing the merged entity’s weight was 1x.

Now, MSCI says it would be 0.5x. Earlier, it was expected the merged entity would see a $3 billion inflow.  MSCI’s tweak could result in a $150 to $200 million outflow.

Presently, HDFC’s weight is 6.74% on MSCI India Index, and as per Pagaria’s calculations, the merged entity will have a tad lower weight of about 6.5%.

On May 5, HDFC and HDFC Bank shares opened over 4% lower after the MSCI tweak. At 9:20 am, HDFC shares traded at Rs 2,745 on the NSE, down 4.09% from the earlier close, and HDFC Bank shares were down 4.07% at Rs 1,657.50.

MSCI inclusion index depends on a stock’s foreign room. Foreign room is the proportion of shares available to foreign investors relative to the maximum approved. MSCI requires this to be at least 15%.

Pagaria said that if the foreign room falls below 15% by the following quarterly review amid volatile flows, MSCI needs to change the weightage again.

HDFC is a part of the MSCI, but HDFC Bank is not, as its foreign room does not meet the threshold.

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