Global index service provider MSCI today announced that the India’s largest private lender HDFC Bank’s weightage will be increased in its Global Standard Index but in 2 tranches, leading to expected passive inflows of $1.8 billion in the Nifty stock.
The long-awaited weightage increase of HDFC Bank will be happening in the month of August, however MSCI has made an exception by raising with lower adjustment factor, leading to an inflow of $1.8 billion, equivalent to 93 million shares, with an impact of about 4.5 days in August Rejig, as estimated by the domestic brokerage firm Nuvama Alternative & Quantitative Research.
The remaining float adjustment (second and final tranche) is expected to be done in the November 2024 rejig, provided the foreign room remains at least 20%.
On account of lower-than-expected inflows of the passive funds, the shares of HDFC Bank fell by 3 % to day’s low of Rs 1,614.45 on BSE.
The timeline of the second tranche has not yet been communicated.
Currently, HDFC Bank’s weight in the MSCI EM Index is around 3.8%. Post-rejig, this could jump to 7.2%-7.5%, potentially bringing in $3.2 billion to $4 billion inflows over 6 days, according to a report by Nuvama Alternative & Quantitative Research.
“Domestic funds have been consistent buyers of HDFC Bank, while FII flows into India have picked up, potentially indicating purchases of private banks, particularly HDFC Bank,” said the Nuvama report.
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“MSCI will maintain HDFC BANK in MSCI Indexes with an increase in the Foreign Inclusion Factor (FIF) from 0.37 to 0.56 as of the close of August 30, 2024 (effective September 2, 2024) coinciding with the August 2024 Index Review,” said MSCI in its note.
MSCI further added that HDFC Bank is subject to a Foreign Ownership Limit (FOL) of 74% and an adjustment factor of 0.5. Based on the latest available shareholding disclosure, the foreign room is above 25%, which makes the bank eligible for the weightage increase in the index.
