INSUBCONTINENT EXCLUSIVE:
Shares of HDFC Bank and parent Housing Development Finance Corp (HDFC) jumped more than 5 per cent each on optimism that their
amalgamation will attract higher capital flows from passive trackers than previously anticipated.
The optimism follows a rule tweak by
global index provider MSCI on treatment of stocks M-A-bound in its indices
the technical overhang of HDFC Bank
What these new rules imply is that HDFC Bank will be considered as an extension of HDFC post the merger and the foreign headroom requirement
will be that of an existing constituent
Sinha, Head of India Equity Sales at Macquarie in a note, which was widely-circulated.
Shares of HDFC rose 5.84 per cent to close at Rs
2,651, while that of HDFC Bank soared 5.62 per cent to finish at Rs 1,611
Both stocks were the biggest gainers in both the Sensex and Nifty indices and accounted for nearly half of the gains made by these
indices.
In another note, Abhilash Pagaria of Nuvama Alternative - Quantitative Research said the weightage of HDFC
and HDFC Bank combined in MSCI will increase to 12 per cent from just 5.73 per cent at represent, which will result in additional flows of
$2-2.5 billion.
Currently, the so-called LIF in case of HDFC is only 0.5, which means only half of its free-float market cap of the stock
is considered for index inclusion
This weighs on its weightage in the index
A LIF of 1 will increase its free float market cap and therefore its weightage.
Interestingly, MSCI had communicated the new methodology in
This does not change anything for us
analyst Brian Freitas of Periscope Analytics who publishes on Smartkarma.
In a note dated October 19, Freitas had said passive MSCI
trackers will need to buy 210.38 million shares (worth $4.27 billion) of the merged entity.
