Synopsis: HDFC Bank's weightage in the MSCI Global Standard Index is set to increase in two tranches, beginning in August 2024. The first tranche will lead to an inflow of $1.8 billion, or approximately 93 million shares, with the second tranche anticipated in November 2024, contingent on foreign ownership limits.
HDFC Bank, India’s largest private lender, is poised for a significant boost in its standing within the global investment community.
Global index provider MSCI has announced a two-stage increase in HDFC Bank’s weightage in its Global Standard Index, a move that is expected to attract substantial passive inflows into the stock.
The first tranche of this long-anticipated weightage increase is scheduled for August 2024.
Despite MSCI implementing a lower adjustment factor than usual, this change is still expected to result in an inflow of $1.8 billion, equivalent to about 93 million shares.
According to estimates by Nuvama Alternative & Quantitative Research, this will have an impact spanning approximately 4.5 days during the August rejig.
The second tranche, which represents the remaining float adjustment, is projected to occur during the November 2024 MSCI review.
This final adjustment is contingent upon the foreign ownership level remaining above 20%, as the bank is subject to a Foreign Ownership Limit (FOL) of 74%.
Currently, HDFC Bank’s weight in the MSCI Emerging Markets (EM) Index stands at approximately 3.8%.
Following the completion of the adjustments, this could rise dramatically to between 7.2% and 7.5%, potentially attracting between $3.2 billion and $4 billion in additional inflows over a six-day period.
This anticipated increase is significant, considering the consistent buying trend by domestic funds and the recent uptick in Foreign Institutional Investor (FII) flows into India, particularly targeting private banks like HDFC Bank.
However, the initial announcement had a mixed impact on the market.
HDFC Bank’s shares fell by 3% to a day’s low of ₹1,614.45 on the BSE, largely due to the lower-than-expected inflows from passive funds.
MSCI’s note confirmed that HDFC Bank would remain in the MSCI Indexes, with an increase in its Foreign Inclusion Factor (FIF) from 0.37 to 0.56, effective from September 2, 2024.
The bank’s eligibility for this weightage increase is supported by the latest shareholding disclosures, which indicate that the foreign room currently exceeds 25%.
The upcoming adjustments in the MSCI index underscore the critical role that HDFC Bank plays in global investment strategies and the broader Indian financial market.
Investors and market watchers will be keenly observing how these changes impact the bank’s stock performance and overall market dynamics in the coming months.
In conclusion, the impending increase in HDFC Bank’s weightage within the MSCI Global Standard Index is a significant event for both the bank and the broader Indian stock market.
The two-tranche adjustment, starting in August 2024, promises to bring substantial passive inflows and could significantly enhance the bank's position in the MSCI EM Index.
However, the market’s initial reaction highlights the complexities and uncertainties that accompany such significant changes.
Investors should remain vigilant as the situation unfolds, particularly in anticipation of the second tranche in November 2024.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. The information provided is based on the latest available data and market estimates. Readers are advised to consult with a qualified financial advisor before making any investment decisions.
