New Delhi: Shares of HDFC Bank and Housing Development Finance Corporation Ltd dropped to nearly 5% on Friday which led to a downfall in key indices.

Some reports said that the HDFC twins could see outflows accumulating to $150-200 million after it reported that MSCI ( Morgan Stanley Capital International) an index aggregator will be using an adjustment factor of 0.5 to quantify merged entities’ weightage.

MSCI stated that post-merger of HDFC and HDFC Bank, it will incorporate the firm in its large-cap index, with an adjustment factor of 0.5 instead of 1.

The adjustment factor is the weightage (importance) attached to a stock in an index.

Following the merger, HDFC bank’s shares were trading 5.56 per cent down at Rs.1,631, while, shares of HDFC were trading low 4.97 per cent at Rs.2,720 on BSE. Within a span of only a few minutes of trade, the market capitalisation of the two firms was wiped off with Rs 63,870 crore.

Housing Development Finance Corp contributes to the global index with a weight of 6.74 per cent. However, HDFC Bank is not a part of the index, although it was expected that the newly merged entity would be a part of the index.

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Fall in Numbers

The downfall in share prices of Housing Development Finance Corporation and HDFC Bank caused a decline in key indices, with Sensex slipping to almost 700 points today, while, the Nifty50 fell over 1 per cent.

After HDFC reported a 20 per cent year-on-year rise in its net profit to Rs.4,425 crore (YoY), an update from MSCI came. HDFC told that its assets under management (AUM) increased by 10.71 per cent to RS.7,23,988 crore in FY23.

What do MSIC, Nuvama Wealth and Investment Management have to say?

“Based on the estimated post-event foreign room of HDFC Bank and pursuant to the MSCI Corporate Events Methodology, to reduce the risk of reverse turnover, MSCI intends to add HDFC Bank to the LargeCap Segment of MSCI Global Standard Indexes with a FIF of 0.37 after applying an adjustment factor of 0.5,” MSCI said in a statement.

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“We had estimated the foreign room for the merged entity to be around 18% which is above 15% and also above the MSCI threshold to maintain stock with full factor. However, as per the current methodology, the weighting of the merged entity would be again reduced in the next quarterly index reviews if the foreign room would have come below 15%,” according to Nuvama Alternative & Quantitative Research’s report.

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