MSCI Tweak May Trigger $200M Outflows From HDFC

The index provider revised the adjustment factor on May 5, contradicting Street expectations that HDFC’s combined company would command double the current weight in MSCI and signaling that the weight will largely remain the same.

The MSCI Plan

With an adjustment factor of 0.5 instead of the market consensus of 1, MSCI plans to include HDFC Bank in the largecap category of MSCI Global Standard Indexes. This would imply that there would be no more inflows. Nuvama Alternative & Quantitative Research estimates that the expansion may instead cause outflows of $150 to $200 million.

As per The Economic Times, had the adjustment factor been set at 1, including HDFC Bank in the largecap category of the MSCI Global Standard Indexes would have produced an additional inflow of almost $3 billion.

According to estimates, the combined business would have a weight slightly lower than HDFC’s current 6.74% weight in the MSCI India index, or roughly 6.5%.

MSCI will further examine the HDFC Bank adjustment factor at a scheduled index review that will take place once the transaction is complete and by section 3.1.6.2 of the MSCI GIMI methodology.

The Foreign Ownership Limit (FOL) for HDFC Bank is 74%, and its present foreign room is less than 15%. Based on the most recent shareholding report available, it is anticipated that the post-acquisition entity’s foreign room will be only a little bit more than 15%.

HDFC Growth

For the quarter ended in March 2023, HDFC reported a standalone net profit of Rs 4,425.50 crore, a boost of nearly 20% YoY.

To reach Rs 16,679.43 crore in total operating revenue, there was a 35.6% YoY rise. In the meantime, its net interest income (NII) for the quarter increased 16% YoY to Rs 5,321 crore.

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