This comes after reports suggested that MSCI has decided to use an adjustment factor of 0.5
Shares of HDFC and HDFC Bank fell 5.5 per cent on Friday; Here’s what investors should know
Why are HDFC twins falling today?: Shares of HDFC and HDFC Bank declined by 5.5 per cent on Friday. This comes after reports suggested that MSCI has decided to use an adjustment factor of 0.5 while calculating the weighting of the merged entity, as against the expectation of an adjustment factor of 1.
According to Nuwama Alternate Research, there may be no incremental inflows into HDFC Bank after the merger, but outflows in the range of $150 million to $200 million.
In an overnight development, MSCI announced a possible treatment for HDFC twins merger on MSCI indices.
Global index provider MSCI intends to add HDFC Bank and the merged entity of HDFC Bank to the Large Cap segment of the MSCI Global Standard Index. The addition to the index will come with an adjustment factor of 0.5.
The adjustment factor is the weighting of a specified stock within a particular index.
Nuwama expects MSCI revising the adjustment factor from 1 to 0.5, which will lead to outflows in the range of $150-200 million.
MSCI says it will continue to monitor the event and will make further announcements as more information becomes available.
According to Nuwama, before MSCI there were two scenarios. One – if the foreign room had remained above 15 per cent, the merged entity’s weighting in the index would have doubled, generating an incremental inflow of $3 billion.
Second, MSCI could have changed methodology to avoid excessive volatility. “Thus MSCI has gone ahead with reducing extreme volatility and changing methodology,” according to Nuwama.
The National Company Law Tribunal (NCLT) has approved the merger of HDFC with HDFC Bank which will be the biggest ever amalgamation in Indian corporate history.
Exchanges have already approved the merger, which is likely to have a net asset value of Rs 18 lakh crore.
What is brokerage
Shares of HDFC had closed the previous day at Rs 2,862.35, down five per cent at the day’s low of Rs 2,720. Shares of HDFC Bank fell to a low of Rs 1,631 after starting the day at Rs 1,637, much lower than their previous closing price of Rs 1,727.2.
Most brokerages have ‘Buy’ rating on HDFC, with CLSA setting a target price of Rs 3,050.
According to Macquarie, which has an ‘Outperform’ rating on HDFC with a target price of Rs 3,060, the focus is on the HDFC-HDFC Bank merger, with a tentative date around July 2023.
Motilal Oswal Financial Services has a 12-month target price of Rs 3,290 as it believes it has strong ‘right to win’ in its standalone mortgage business.
The management shared that despite higher interest rates, there has been no visible change in mortgage demand and a large section of customers have seen only an increase in their tenure rather than an increase in EMIs. In March 23, HDFC Achieved highest ever monthly disbursements of Rs.10,000 crore and this positive momentum is expected to continue throughout FY24. Commentary has varied across lenders on the current mortgage demand in the mortgage ecosystem.”
We have raised our FY25 EPS estimates by 2 percent as we factor in lower credit costs. We expect HDFC to deliver AUM and PAT CAGR of ~14 per cent in FY 23-25, which will translate into core ROA/ROE of 2 per cent/14 per cent in FY 25.
Disclaimer:Disclaimer: The views and investment tips given by the experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decision.
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