The weightage of private sector lender HDFC Bank in the Global Standard index will be raised in two tranches, MSCI said in its communication on August 13.
The MSCI announced that it will maintain HDFC Bank in its indices, and bump up the 'Foreign Inclusion Factor' for the stock from 0.37 to 0.56. The Foreign Inclusion Factor (FIF) in MSCI indices is the proportion of shares available for purchase in the public equity markets by international investors.
If HDFC Bank's FIF is 0.56, it means 56 percent of its shares are available for foreign investment in the index.
The latest foreign ownership opens up the ‘foreign room’ in HDFC Bank to more than 25 percent, necessary for MSCI to include a stock at its full market-cap weight. With this inclusion, the bank is likely to get MSCI inflow of up to $5 billion, according to some market participants.
The first adjustment in HDFC Bank will take place post the current rejig in August.
"As mentioned in the MSCI Global Investable Market Indexes (GIMI) methodology, securities with foreign room greater than 25 percent are maintained in the MSCI GIMI Indexes with the adjustment factor of 1," said MSCI. However, in view of the significant weight of HDFC Bank in its India Index, MSCI will apply an adjustment factor of 0.75 along with the August 2024 Index Review.
If the FPI headroom in HDFC Bank remains above 20 percent, the change in weightage will be communicated during the November rejig. The remaining increase of the adjustment factor from 0.75 to 1 would be implemented as part of the November Index Review, in the case.
"MSCI will continue to monitor the foreign room of HDFC Bank and issue further communication in case there are material changes in its foreign room," said MSCI.
Nuvama Institutional Equities said, "For HDFC Bank, the long-awaited weight increase is finally happening. MSCI has made an exception by raising with lower adjustment factor, leading to an inflow of $1.8 billion, equivalent to 93 million shares, with an impact of about 4.5 days in August rejig."
"The remaining float adjustment (second and final tranche) is expected (officially been communicated) to be done in the November 2024 rejig, provided the foreign room remains at least 20%, which we believe should not pose a problem," added the brokerage.
Also Read | HDFC Bank’s spell of underperformance may be over as MSCI weight likely to increase
Shareholding data for June 2024 released on July 2 showed that foreign ownership in HDFC Bank stood at 54.83 percent, which makes it eligible for increase in MSCI weight during the upcoming August 2024 rebalancing.
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