Shares of HDFC and HDFC Bank are down 4.5 percent each on Friday and are the top losers on the Nifty 50 index after Nuvama Alternate Research spoke about the MSCI treatment to the merged entity.

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The post-merger HDFC Bank may see no incremental inflows, but outflows in the range of $150 million to $200 million, according to Nuvama Alternate Research.

In an overnight development, MSCI announced the potential treatment for the merger of the HDFC twins on the MSCI indices.

Global index provider MSCI intends to add the merged entity of HDFC Bank and HDFC to the large cap segment of MSCI Global Standard index. Addition to the index will come with an adjustment factor of 0.5.

Adjustment factor is the weightage of a stock assigned within a particular index.

Nuvama expects MSCI revising the adjustment factor to 0.5 from 1, will lead to outflows in the range of $150-200 million.

MSCI says it will continue to monitor the event and make further announcements as more information is available.

There were two scenarios before the MSCI, according to Nuvama. One - had the foreign room remained above 15 percent, the weightage of the merged entity in the index would have doubled, leading to incremental inflows of $3 billion.

Second, MSCI could have changed the methodology to avoid excess volatility. "Thus MSCI has gone ahead with reducing excessive volatility and changing the methodology," according to Nuvama.

The National Company Law Tribunal (NCLT) has approved the merger of HDFC into HDFC Bank in what will be the biggest-ever amalgamation in Indian corporate history.

Exchanges have already approved the merger, which is likely to have a combined asset base of Rs 18 lakh crore.

In an interview with CNBC-TV18 last month, Keki Mistry, Vice Chairman and CEO of HDFC said that after the NCLT announcement, he expects the merger to be completed by late June or early July, which is in line with the timeline previously announced by the companies.

Shares of HDFC and HDFC Bank are contributing over 120 points to the Nifty 50 downside, but the fall in the index is being offset by other banking names like ICICI Bank and Axis Bank.

First Published:May 5, 2023 9:09 AM IST