HDFC Bank shares drop at market opening due to MSCI Index changes
Shares of the leading private bank, HDFC Bank, declined sharply as the market opened on Tuesday, August 13. The stock began trading with a 2.1% drop at Rs 1628. This decline is primarily attributed to changes in the MSCI Global Standard Index, which have increased HDFC Bank’s weightage. As a result, profit booking was anticipated, leading to the stock opening lower.
MSCI Increases HDFC Bank’s Weightage in Global Standard Index
In its August index review, global index aggregator MSCI announced that it would increase HDFC Bank’s weightage in its Global Standard Index in two phases. The Foreign Inclusion Factor (FIF) for HDFC Bank will be raised from 0.37 to 0.56, effective at the close of August 30, with the change becoming active on September 2. The remaining increase will occur during the November index review, provided the foreign room remains at least 20% at that time.
Nuvama noted that this long-anticipated weight increase for the Bank is finally taking place. “MSCI has made an exception by raising the weight with a lower adjustment factor, leading to an inflow of $1.8 billion, equivalent to 93 million shares, impacting about 4.5 days in the August rejig. The second and final tranche is expected in the November 2024 rejig, assuming the foreign room remains at least 20%, which is not expected to be an issue,” Nuvama stated.
MSCI also confirmed that the Bank would remain in its indices, with the Foreign Inclusion Factor (FIF) increasing from 0.37 to 0.56 by August 30, coinciding with the August 2024 index review.
HDFC Bank is subject to a Foreign Ownership Limit (FOL) of 74% and an adjustment factor of 0.5. MSCI mentioned that the foreign room for the Bank is currently above 25%, and according to the MSCI Global Investable Market Indexes (GIMI) methodology, securities with foreign room greater than 25% are maintained in the indices with an adjustment factor of 1. However, due to HDFC Bank’s significant weight in the MSCI India Index, an adjustment factor of 0.75 will be applied in the August 2024 review.
The remaining increase in the adjustment factor from 0.75 to 1 will be implemented in the November index review, provided the foreign room remains at least 20%. MSCI will continue to monitor HDFC Bank’s foreign room and issue further communication if there are any material changes.
