HDFC Bank Shares Down 3% As MSCI's August Rejig Weight Change Disappoints Investors

HDFC Bank share price today dipped 3 per cent to Rs 1,614.55 on the BSE in Tuesday’s intraday trade. The fall came on a lower than expected increase in weight in MSCI index.

The first adjustment, raising the foreign inclusion factor (FIF) from 0.37 to 0.56, is set for September 2, following the current rebalancing. The second adjustment, bumping the FIF from 0.75 to 1, is slated for November.

The Foreign Inclusion Factor (FIF) in MSCI indices represents the proportion of shares available to international investors in public equity markets. An FIF of 0.56 for HDFC Bank indicates that 56 per cent of its shares are open to foreign investment within the index. The final adjustment, raising the factor to 1, will occur in November, contingent on HDFC Bank’s FPI headroom staying above 20 per cent.

Global index aggregator MSCI in its August index review said it would increase HDFC Bank’s Global Standard index weightage in two tranches. MSCI said it would increase HDFC Bank’s Foreign Inclusion Factor (FIF) to 0.56 from 0.37 as of the close of August 30. The remaining increase would be implemented as part of the November index review in the event the foreign room continues to be at least 20 per cent at that time, it said.

The long-awaited weight increase for HDFC Bank is finally happening, said Nuvama.

“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 per cent, which we believe should not pose a problem,” Nuvama said.

MSCI said it would maintain HDFC Bank in MSCI Indices, with an increase in the Foreign Inclusion Factor (FIF) from 0.37 to 0.56 as of the close of August 30, effective September 2, coinciding with the August 2024 index review.

HDFC Bank is subject to a Foreign Ownership Limit (FOL) of 74 per cent and an adjustment factor of 0.5. Based on the latest available shareholding disclosure, the foreign room is above 25 per cent, MSCI said.

“As mentioned in the MSCI Global Investable Market Indexes (GIMI) methodology, securities with foreign room greater than 25 per cent are maintained in the MSCI GIMI indices with the adjustment factor of 1. However, in view of the significant weight of HDFC Bank in the MSCI India Index, MSCI will apply an adjustment factor of 0.75 along with the August 2024 Index Review,” it said.

“The remaining increase of the adjustment factor from 0.75 to 1 would be implemented as part of the November Index Review in the event the foreign room continues to be at least 20 per cent at that time. 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,” it said.