HDFC Bank, HDFC hit over 7-month highs; stocks rally up to 15% in one month

According to a Macquarie report, the merged entity of HDFC-HDFC Bank may command a MSCI Weight of 13 per cent, up from 5.78 per cent

Shares of a mortgage lender Housing Development Finance Corporation (HDFC), and its associate company HDFC Bank hit their respective over seven-month highs on Friday as they rallied nearly 6 per cent in the intra-day trade.

While HDFC gained 5.7 per cent to hit a high of Rs 2,649.7, HDFC Bank surged 6.1 per cent to Rs 1,619 on the BSE. These stocks wee trading at their highest levels since April 2022. In comparison, the S&P BSE Sensex was up 1.8 per cent at 61,719 points at 12:20 PM.

The rally comes amid reports of change in MSCI Index rules pertaining to M&As. As per reports, MSCI has done away with requirement of minimum foreign room.

According to a Macquarie report, the merged entity of HDFC-HDFC Bank may be included in the index, and command a MSCI Weight of 13 per cent, up from 5.78 per cent. Adjustment factor of 1x applicable instead of 0.5x, it said.

On April 4, 2022, the board of directors of HDFC and HDFC Bank had approved a merger of two equals that is subject to various regulatory approvals. It will likely take effect in about 15 to 18 months. Every HDFC shareholder will get 42 shares of HDFC Bank for every 25 shares held.

HDFC Bank said the lender already had a huge opportunity with the under-penetration of banking services in the country. The proposed merger adds an entirely different dimension to the future.

Last month, the National Company Law Tribunal (NCLT) gave its nod for holding a shareholders' meeting for obtaining approval for the proposed merger of HDFC with HDFC Bank.

The shareholder meeting will be convened on November 25, 2022 for the purpose of considering and approving the Scheme of Amalgamation, HDFC said in a regulatory filing on October 14.

Meanwhile, brokerage firm Sharekhan believes HDFC Bank is on an accelerated growth path with strong advances growth, led by retail, MSME, and corporate segments along with healthy low-cost deposit mobilisation.

"The bank’s continuous building up of its digital capabilities and franchise network is likely to bode well for growth going ahead. The stock has underperformed its peers in the past 12 months. The bank is well capitalised and has the ability to manage its asset quality across cycles and deliver superior return ratios irrespective of economic cycles and reap opportunities from any revival in the economy going ahead," the brokerage firm said in September quarter result update.

Over the past one month, HDFC and HDFC Bank have rallied up to 15 per cent, as against 7.8 per cent rise in the benchmark index. These stocks have recovered 29 per cent, and 25 per cent, respectively, from their 52-week lows, touched on June 17, 2022.