HDFC slips below SBI in m-cap race as shares fall post Q4 results, MSCI tweak

Housing Development Finance Corporation Ltd slipped below State Bank of India (SBI) in terms of market capitalisation (m-cap) following the housing finance company's March quarter results and amid reports that the MSCI tweak may result in $200 million outflows for the mortgage lender against expectations of strong inflows.

HDFC shares plunged 4.97 per cent to hit a low of Rs 2,720 and commanded a m-cap of Rs 5,01,7247 crore, down nearly Rs 23,400 crore over Thursday's market value of Rs 5,25,114 crore. SBI shares, on the other hand, rose 1.3 per cengt to hit s high of Rs 587.35 on BSE, commanding a m-cap of Rs 5,24,098 crore against Rs 5,17,627 crore in the previous session. If the gap sustains till the end of the session, this would be the third instance in a month when SBI beats HDFC in the m-cap race on a closing basis.

HDFC's 20 per cent surge in March quarter profit was in line with Steet expectations and that 16 per cent jump in net interest income (NII) beat Street estimates. What probably led to the stock was due to a likely $150-200 million in outflows in the merged HDFC Bank entity following a MSCI tweak. Analysts are largely expecting HDFC-HDFC Bank merger by July.

Target prices for HDFC largely suggest up to 16 per cent potential upside on the counter.

"Merger narrative will drive stock price. Historically, entities that are merged have traded at a discount to the merger ratio. We believe risk reward for HDFC is evenly balanced," said Nuvama Institutional Equities. This brokerage has upped its price target on the counter to Rs 2,820 from Rs 2,700 earlier. Nomura India has a target of Rs 3,100 on the stock. Nirmal Bang Institutional Equities finds the stock worth Rs 3,313.

Nuvama Alternative & Quantitative Research noted that the index aggregator MSCI said it will use an adjustment factor of 0.50 to compute HDFC merged company weightage, which could lead to outflows. This is against an earlier expectation of $3 billion in inflows.

Nuvama noted that the private bank is subject to a Foreign Ownership Limit (FOL) of 74 per cent and has current foreign room below 15 per cent. Based on the latest available shareholding disclosure, the foreign room of the post-acquisition entity is expected to be marginally above 15 per cent, it said.

Nuvama said based on the estimated post-event foreign room of HDFC Bank, MSCI intends to add HDFC Bank to the Large Cap segment of MSCI Global Standard Indexes with a Foreign Inclusion Facto (FIF) of 0.37 after applying an adjustment factor of 0.5. This will lead to no incremental inflow but slight outflows of $150 million to $200 million, Nuvama noted.

Also read: HDFC Bank merged entity may see $150-200 million outflows on MSCI tweak, says Nuvama

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