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HDFC Bank merged entity may see $150-200mn outflows

May 05, 2023

HDFC Bank merged entity may see $150-200mn outflows
MSCI intends to add HDFC Bank to the largecap segment of MSCI Global Standard Indexes, with an adjustment factor of 0.5 versus market expectations of 1. This would mean that it would see no incremental inflows. Rather, the addition may result in outflows of $150 to 200 million, according to Nuvama Alternative & Quantitative Research.
 
“Based on the estimated post-event foreign room of HDFC Bank and pursuant to the MSCI Corporate Events Methodology, to reduce the risk of reverse turnover, MSCI intends to add HDFC Bank to LargeCap Segment of MSCI Global Standard Indexes with a FIF of 0.37 after applying an adjustment factor of 0.5,” MSCI said in a statement.
 
HDFC Bank’s addition to the largecap segment of the MSCI Global Standard Indexes would have resulted in an incremental inflow of around $3 billion had the adjustment factor been at 1, an ET Now report said.
 
Currently, HDFC’s weight is 6.74% in MSCI India index and as per Nuvama’s calculation, the merged entity would have slightly lower weight of about 6.5%.
 
“We had estimated the foreign room for the merged entity to be around 18% which is above 15% and also above the MSCI threshold to maintain stock with full factor. However, as per the current methodology, the weighting of the merged entity would be again reduced in the next quarterly index reviews if the foreign room would have come below 15%,” Nuvama added.
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