Abrdn's clean-up block trade of a 10.2 percent stake in HDFC AMC will increase the company's free float market capitalisation but the stock has to rally over 10 percent from the current level to make it back to the MSCI index.
"As per the latest global market cap cut-off, HDFC AMC needs to move above Rs 2,220 levels before the cut-off date in July to make a re-entry in MSCI Standard Index in the forthcoming August 2023 review," Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research told Moneycontrol.
A stock's inclusion into an MSCI index results in inflows from passive funds. If included, HDFC AMC will see inflow to the tune of $135 million in MSCI rebalance, Pagaria said.
At 10:50 am, HDFC AMC was quoting at Rs 2,030 on the National Stock Exchange, higher by 7.3 percent from the previous close.
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HDFC AMC was a part of the MSCI index but was excluded in May 2022 after it slipped from Rs 3,200 levels in September 2021 to Rs 2,000 in April 2022. "The stock's free-float market cap failed to meet the MSCI threshold, about $1.3 billion then, following which it was excluded," Pagaria said.
Since Abrdn was a strategic partner, MSCI considered its holding in non-free float market cap. "With Arbdn offloading stake, this will now get added to the free float. Had the stake sale not happened, the stock would have had to rally over 25 percent for the MSCI August review," he explained.
Abrdn, formerly known as Standard Life, has been consistently paring its stake in HDFC companies for some time now. The UK-based investment firm had sold off its entire 1.66 percent stake in HDFC Life Insurance for Rs 2,036.7 crore through a block deal on May 31.
HDFC AMC is a member of the FTSE Index and has a weight of 17 basis points. As per Pagaria and his team's analysis, the inflow will be approximately $16 million as the stock's weight goes up.
One basis point is one-hundredth of a percentage point.
Bleak outlook for AMC stocks
While the long-term story of asset management companies (AMC) stocks hinges on the increasing financialisation in India, the near-term outlook is not too bright.
Recently, the market regulator Securities and Exchange Board of India proposed a uniform total expense ratio (TER) across mutual funds to enhance transparency in the costs charged to unitholders.
TER is a percentage of a scheme’s corpus that a mutual fund house charges towards expenses. SEBI now wants to include a number of charges outside of TER within the same and also seeks to impose TER at the AMC level rather than the scheme level.
"The impact at this point is unclear, but this could lead to a ~10-15 percent cut in earnings," according to analysts at JPMorgan.
Assets under management for AMCs are already under pressure since the start of the year amid government's alterations in the tax structure for debt funds and increasing competition.
HDFC AMC stock is down 7.5 percent for the year so far. According to Bloomberg, the consensus 12-month target price on the stock is Rs 1,993, which is lower than the current market price.
On the back of this, a 10 percent rally in the stock over the next month seems difficult, analysts say.
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