Shares of HDFC and HDFC Bank fell as much as 5.63 per cent and 5.9 per cent each respectively on fears that the merged entity could see meaningful fund outflows after index provider MSCI assigned lower weightage to the merged entity.
"Based on the estimated post-event foreign room of HDFC Bank and pursuant to the MSCI Corporate Events Methodology (Section 1), to reduce the risk of reverse turnover, MSCI intends to add HDFC Bank to the Large-Cap segment of MSCI Global Standard Indexes with a foreign inclusion factor of 0.37 after applying an adjustment factor of 0.5," MSCI said in a statement.
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"Addition of HDFC Bank in MSCI India with a weight of ~12% would have translated into inflows of ~$3bn. However applying adjustment factor of 0.5 would mean HFDC Bank gets added with weight similar to HDFC (~6.7%) in the index," IIFL Alternative Research told BQ Prime.
Heavy sell-off in index major HDFC twins also dragged down the benchmark indices. The 30-share BSE Sensex ended 694.96 points or 1.13 per cent lower at 61,054.29. The NSE Nifty fell 186.80 points or 1.02 per cent to settle at 18,069.
"The Indian market was dragged down by heavy selling in HDFC twins on fears of post-merger fund outflow," said Vinod Nair, Head of Research at Geojit Financial Services.
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The market valuation of HDFC Bank fell by Rs 56,228.1 crore to Rs 9,07,505.07 crore and that of HDFC declined by Rs 29,572.72 crore to Rs 4,95,541.41 crore.
"Markets were under a bear hug on the back of massive profit-taking amid sell-off in HDFC twins, US banking woes and weak Wall Street cues. The negative takeaway was that Nifty Bank tumbled 2.3 per cent on reports that the merger of HDFC twins may result in outflows of $150 to 200 million," said Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd.
Aditya Gaggar, Director of broking firm Progressive Shares said, the MSCI intends to add HDFC Bank to the large-cap segment of MSCI Global Standard Indexes, with an adjustment factor of 0.5 vs the market expectation of 1 which would mean that it would see no incremental inflows.
"Rather, it may result in outflows of $150-200 million. (It would have resulted in an incremental inflow of around $3 billion had the adjustment factor been at 1)," Gaggar said.
(With PTI inputs)
