The high profile merger of HDFC with HDFC Bank is coming to a close, and the resultant entity will be 'too big to ignore'. So much so that several mutual funds schemes will breach market regulator's norm for maximum permitted holdings in a security. According to a Moneycontrol analysis, around 60 mutual fund schemes will hold Rs 5,000 crore worth of HDFC Bank shares beyond Sebi's (Securities and Exchange Board of India) prescribed limit post merger.
As per SEBI, a mutual fund scheme cannot invest more than 10 percent in a single security. Exchange-traded funds and thematic funds are exempt from this rule.
Of the 60 funds, the largest excess exposure, to the tune of Rs 1,231 crore, will be held by Mirae Asset Large Cap Fund-Reg(G). A name from the HDFC group pops up, too. HDFC Top 100 Fund(G) will have the second highest excess exposure of Rs 720 crore.
Our calculations have also found two schemes - Tata Quant Fund-Reg(G) and Invesco India Tax Plan(G) - overshooting the limit by 5 percent. Invesco India Tax Plan(G), which has a total AUM of Rs 1,999 crore, will hold ~Rs 101 crore worth HDFC Bank shares in excess post merger.
Possible scenarios
According to a Reuters report, SEBI is unlikely to give special exemption to mutual funds if they breach the norms.
After the merger, when funds report the holdings in their schemes, they will get 30 days to rebalance, said Abhilash Pagaria, Head - Nuvama Alternative & Quantitative Research.
"The industry was prepared for this scenario. Fund managers can start adjusting their portfolios right away or sell their holdings in that 30-day period. Either way, the stock will not come under too much pressure because 20-day average trading and delivery volumes is sufficient to take care of Rs 5,000 crore impact," he said.
Market participants are certain that the selling will be absorbed by smart money.
"A good quality stock such as HDFC Bank always finds equilibrium in the case of a sell off being triggered due to non-fundamental reasons. Smart money by high-networth individuals and retail Investors will fill the gap left by their institutional contemporaries," said Ali Azar, a chartered accountant and content creator specialising in stock markets.
On May 4, HDFC Bank shares tumbled over 6 percent after index provider MSCI tweaked the adjustment factor for the combined entity. Soon after, the stock recovered a bit and is now down 1.4 percent since then.
On June 15, the stock was quoting at Rs 1,603 on the NSE, higher by 0.12 percent at 9:50 am with volumes of 1.4 million shares.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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