Shares of merger-bound HDFC Bank and Housing Development Finance Corporation Limited closed in the red after falling sharply on Friday. This happened after an update by the MSCI (Morgan Stanley Capital International) spooked investors.
HDFC Bank’s shares dropped 5.84 per cent to close at ₹ 1626.95 apiece, while Housing Development Finance Corporation’s shares slumped 5.56 per cent to close at ₹ 2702.90 apiece.
The MSCI is an index aggregator. It provides stock indices, portfolio risk and performance analytics, and governance tools. Its indices are widely followed by institutional investors and hedge funds who might replicate the weightage of the stocks in the index in their portfolios. Therefore, an increase in the weightage of any stock in the MSCI index leads to an inflow of investment in that stock, while a decrease in weightage leads to an outflow.
Housing Development Finance Corporation Ltd. is already a part of the MSCI Global Standard index and it has a weightage of 6.74 per cent. Once its merger with HDFC Bank is completed, the merged entity will have a weightage in the index.
Reports suggest that MSCI announced that it will use an adjustment factor of 0.5 while computing the weightage of the merged entity instead of an adjustment factor of 1. The adjustment factor is the weightage of a stock assigned within a particular index.
Moreover, according to Nuvama Alternate Research (a part of the Edelweiss group), the merged entity will see an outflow of funds in the range of $150 million to $ 200 million, as the MSCI might revise the adjustment factor to 0.5 from 1 while computing its weightage.
The fall in the shares of HDFC Twins dragged key indices lower. The Sensex pared almost 700 points (1.13 per cent) on Friday and settled at 61,054 points at the closing bell, while the Nifty 50 shed 186 points (1.02 per cent) to close for the week at 18,069 points. The Nifty Bank index suffered deep cuts and settled at 42,661 points after losing 1,024 points (2.34 per cent).
Written by Simran Bafna
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