FTSE Global Equity indices is expected to replace mortgage-lending pioneer HDFC Ltd with India's largest private lender HDFC Bank and continue with the current free float shares of Housing Development Finance in the indexes at the time of the merger, according to a report by Nuvama Alternative & Quantitative Research.
FTSE will rename the constituent with the acquirer's name
HDFC Bank, resulting in no weight changes, Nuvama said. MSCI will continue with the half factor for the merged entity and passive trackers will have to sell around $150-200 million of the merged entity on the potential index adjustment.
Currently, HDFC Ltd is part of the FTSE indexes, while HDFC Bank is not a member. The report said that FTSE will most likely combine the original HDFC Bank shares provided sufficient liquidity, no foreign ownership restriction and a 10 percent-plus foreign headroom is available.
The move could lead to potential weight up inflow of around $1.3 billion odd / 63 million shares of the merged entity, according to Nuvama.
In terms of impact, the brokerage said this shouldn't be very significant for the humongous size of the merged entity.
However, the eligibility screening of HDFC Bank will be done only in the next quarterly review scheduled on September 23, 2023.
"The eligibility screenings for HDFC Bank will be assessed in the subsequent quarterly review after the merger, including liquidity and minimum foreign headroom requirement screens as a constituent, as well as reviewing shares and Foreign Ownership Restriction attributed to the HDFC Bank," FTSE said in a note.
In non-
market capitalisation weighted indices such as the FTSE RAFI index series, HDFC will be deleted from the index, but HDFC Bank will not be added to the index, FTSE said.
FTSE Russell will issue further notice once the effective date of the merger becomes available, the note said.
HDFC twins mega-merger
HDFC and HDFC Bank are working towards completing the mega merger of the two financial behemoths by July 1 and will likely set July 13 as the record date for swapping shares, HDFC said in an exchange filing earlier.
HDFC Ltd Chairman Deepak Parekh had said that both the boards will meet post market hours on today (June 30), which would also be the last board meeting of HDFC, and its shares will go off market effective July 13.
After the merger, HDFC branches will continue, but the signboards will say HDFC Bank.
The merger, which will create a combined entity with a market capitalisation of Rs 14.37 lakh crore, will benefit both shareholders and customers at a time of steady growth for the Indian economy.
Stock performance
Dalal Street investors are eagerly awaiting the completion of the deal. Shares of HDFC Bank are up less than the Nifty Bank index over the past year. According to Ganapathy, the Macquarie analyst, the stock's performance will depend on the growth of the loan book at 18 percent to 20 percent, and a 2 percent return on assets.
On Friday, shares of HDFC Bank are trading 1.21 percent higher at Rs 1,696.50 apiece on the NSE, while those of HDFC are trading 0.91 percent higher at Rs 2,804.40.
(Edited by : C H Unnikrishnan)
First Published: Jun 30, 2023 11:48 AM IST
