HDFC Bank and HDFC Ltd shares tanked up to 6% on Friday before recovering marginally to trade 4% lower on NSE amid a report suggesting the merged HDFC entity could see $150-200 million in outflows, as MSCI will use an adjustment factor of 0.50 to compute HDFC merged company weightage.
HDFC Bank share price plunged more than 5% to hit an intraday low of Rs 1,626 on NSE. HDFC Ltd. share price plunged around 5% to hit an intraday low of Rs 2,718 on NSE. The market capitalisation of the two companies fell over Rs 63,800 crore on BSE within the first few minutes of trade.
HDFC Bank is subject to a Foreign Ownership Limit (FOL) of 74%, and has current foreign room below 15%. Based on the latest available shareholding disclosure, the foreign room of the post-acquisition entity is expected to be marginally above 15%, Nuvama Wealth Research said in a note.
"Based on the estimated post-event foreign room of HDFC Bank and pursuant to the MSCI Corporate Events Methodology (Section 1), to reduce risk of reverse turnover, MSCI intends to add HDFC Bank to the Large Cap Segment of MSCI Global Standard Indexes with a FIF of 0.37 after applying an adjustment factor of 0.5. Thus leading to no incremental inflow but slight outflow ($150 to $200mn)," Nuvama noted.
According to analysts at Nuvama, MSCI intends to further review the adjustment factor of HDFC Bank at a scheduled index review following the completion of the transaction and in accordance with the section 3.1.6.2 of MSCI GIMI methodology.
According to the research firm's note, HDFC's current weight is 6.74% in MSCI India Index and as per its preliminary calculations, the merged entity would have a slightly lower weight of about 6.5%.
Nuvama Wealth analysts had estimated the foreign room for the merged entity to be around 18%, which is above 15% and 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%," it said.
Analysts at Sharekhan, ICICI Securities, Kotak Institutional Equities, Prabhudas Lilladher, Motilal Oswal have assigned a 'buy' rating to HDFC Bank with a target price of up to Rs 1,990 per share.
Meanwhile, HDFC has reported 20% jump in March quarter profit, and a 16% rise in net interest income (NII) beat. Target prices for HDFC largely suggest up to 16% potential upside on the counter. All eyes are on HDFC's merger with HDFC Bank, analysts said.
"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.
Nuvama Institutional Equities has raised its price target on HDFC stock to Rs 2,820 from Rs 2,700 earlier. Nomura India has a target of Rs 3,100 on the stock, while Nirmal Bang has set a target price of Rs 3,313 per share.
Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Business Today. Investors should consult their financial advisors before taking any position.