Merged HDFC may see strong incremental MSCI-related foreign inflows if..
1 min read . Updated: 19 Jan 2023, 10:18 AM IST
Premium- HDFC merger’s completion is slated for between May and June 2023
The HDFC twins HDFC Bank and HDFC Ltd released their December 2022 shareholding format. As per Nuvama Alternative & Quantitative Research's calculations, FII holding at 61% in the merged entity remains broadly unchanged compared to Sep-22’s 61.1%.
Thus, the foreign room ((Foreign limit - Shareholding)/Foreign limit) in the merged entity is at 17.6% against the stipulated minimum requirement by MSCI Indices of 15% for the merged stock to remain in the index with the adjustment factor of 1, as per the brokerage house's research which has reiterated two scenarios for the merged entities: Below 15% and above 15% –
First is, if the HDFC merged entity’s foreign room goes below 15% before the MSCI weightage consideration, then any incremental inflow is rather unlikely. Second, if the merged entity continues to have foreign room, above 15%, then as per initial calculations the incremental inflow could be approx $2.5 bn to $3 bn.
“As it stands, the merger’s completion is slated for between May and June 2023. So, forthcoming shareholdings becomes all the more crucial to ascertain the probable weight increase in the MSCI Standard Index," the brokerage said.
In April last year, the country's largest housing finance company HDFC Ltd announced that it will merge with HDFC Bank. Post-merger HDFC will hold 41% stake in HDFC Bank. The parent-subsidiary merger is seen as the biggest transaction in India's corporate history.
In another report in November last year, Nuvama's research stated that “MSCI has modified its methodology for M&A (early inclusion). As per our understanding of the methodology, the weightage/shares of HDFC ltd would be replaced by HDFC Bank in the standard index. Alongside with the higher total/Free float market cap the weightage would be much higher than the latest weight of 5.73%. The combined weightage could double to appx 12% plus as the adjustment factor of 0.5x should not apply and 1x adjustments factor will be considered."
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