Moneycontrol Pro Panorama | HDFC’s merger with HDFC Bank is an idea whose time had come

Dear Reader,

This was the week when investors were preparing to put on their thinking caps but instead on Monday they were found wearing their dancing shoes, as an unexpected bonanza came their way. India’s Monetary Policy Committee’s rate decision is due later this week. Inflation has been moving up and the hike in fuel prices could see it harden further, even as tax collections point to a robust recovery. The hawks are inching ahead of the doves.

If a rate hike were to be announced, equity investors would have to deal with the task of deciphering central bank speak and wondering what that means to their portfolio. Do they stay the course or rebalance?

While such weighty issues may have occupied their minds early in the morning, they were blown away after HDFC and HDFC Bank blew the bugle on a merger decision. This could easily rank as one of the longest pending demands of investors.

That day finally arrived and investors jumped with joy. The scheme involves merging HDFC with HDFC Bank and issuing the bank's shares to HDFC’s shareholders in return. The shares held by HDFC in HDFC Bank would get cancelled. Needless to say, the combined entity would be a formidable one with shareholders of both companies gaining. At 1 pm, the shares of both institutions were up by 8-9 percent each.

But one-day price movements are not how you judge large mergers of this kind. My colleague Ravi Krishnan writes about how regulatory changes and nudges meant that the merger of the two had become inevitable. And, that there are stumbling blocks to be overcome for the merger to succeed.

The merger is also a nod to the consolidation under way in the banking sector, with the government merging state-owned banks to create fewer but bigger institutions. Citi's exit from the consumer business also means Axis Bank will become a more aggressive player in retail. A merger creates a behemoth that can take on these challenges. A combined and bigger balance sheet also means the bank can undertake lending to large projects in sectors such as infrastructure.

Our research team is hard at work, analysing the numbers and management commentary, to bring you a comprehensive analysis of what this merger means for various stakeholders but most importantly for investors. This article has now been published and you can read Madhuchanda Dey's take on the merger, why now, the benefits and what it implies for the financial sector.

Meanwhile you can read this piece on the benefits that could accrue if the two were to merge, written by Neha Dave in Pro over a year ago (now opened up for all to read).

When the day began, the SGX Nifty was pointing to a slight downtick went one opinion, using it as a lead indicator (not always correct though) of how India’s markets would start the week. But the rise in HDFC and HDFC Bank’s shares meant that the broad market was up by 1.8 percent at 1 pm. The Hang Seng is giving it competition, however, as China’s reported decision to allow disclosures of audit reports could mean Chinese technology companies listed in the US may avoid a delisting blow.

Tomorrow, after the dust settles on the HDFC-HDFC Bank merger, attention will come back to how investors should adapt to the turbulent times that beckon. If you need some expert advice, here’s Mohamed El-Erian writing in the FT (free to read for Pro subscribers) on how investors should interpret the strength in US stocks. Domestic investors could benefit from his insights as well. Meanwhile, here’s what else was published in today’s edition.

Investing insights from our research teamAU Small Finance Bank -- Why this stock can’t be missed

Will Aavas Financiers reverse the recent underperformance?

Dr Reddy’s: Improving exposure to EMs adds to investment case

The way out of a K-shaped recovery

How Sri Lanka reached this economic precipice

As inflation tests RBI, managing expectations may get painful

The Eastern Window: Beijing wary of Pakistan becoming theatre of US-China tussle

India-Australia deal — Benefits extend beyond trade gains

Defence indigenisation push brightens outlook for BEL, HAL

GuruSpeak | Sahil Swaroop - using  Algos to trade multiple strategies

Technical Picks: BHEL, GMR Infra, HDFC AMC, USD-INR, Bank Nifty and Lead (These are published every trading day before markets open and can be read on the app)