HDFC to benefit from NSE tweak in index composition rule on mergers

Under new framework, in the event of a merger, target company will be deleted from index a day prior to ex-date, weight of acquirer (if part of the same index) will be increased the same day

NSE Indices on Friday revised its index composition methodology around treatment of corporate events such as mergers. Under the revised framework, in the event of a merger, the target company will be deleted from the index a day prior to the ex-date. The weight of the acquirer (if part of the same index) will be increased the same day.

“Amendment removes overhang of HDFC's deletion from the Nifty 50 after shareholders’ approval,” said Sriram Velayudhan of IIFL Alternative Research.

Under the earlier framework, HDFC, which is getting merged into HDFC Bank, would have first been deleted from the index and got added again at a later date. This could have caused a huge churn in the index.

In October, NSE Indices had floated a consultation paper seeking market feedback on merger and demerger of Nifty components.