MSCI August rejig: HDFC Bank dips 3% on lower than expected weight increase

HDFC Bank MSCI rebalance news: MSCI has announced that the weight of HDFC Bank will be gradually increased, in two tranches, to full weight of 1

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.

MSCI has announced that the weight of HDFC Bank will be gradually increased, in two tranches, to full weight of 1. In the coming rebalancing on August 30, it will be increased by just 25 bps as against market expectations of 50bps. This lower than expected increase in weight, analysts at ICICI Securities said, could keep the stock in a range in the near-term.

With today's decline, HDFC Bank has corrected 10 per cent from its 52-week high level of Rs 1,791.90 touched on July 3, 2024. The stock had rallied 31 per cent (till July 3) from its 52-week low of Rs 1,363.45 hit on February 14.

At 09:29 AM, HDFC Bank was trading 2.3 per cent lower at Rs 1,622.50 as compared to 0.08 per cent decline in the BSE Sensex.

MSCI, in its index announcement on August 12, said that it will 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, 2024 (effective September 2, 2024) 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. MSCI will apply an adjustment factor of 0.75 along with the August 2024 Index Review.

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.

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, MSCI 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, it added.

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.

Meanwhile, operationally, HDFC Bank is confident of enhancing its profitability and strengthening the balance sheet. Improved cost-to-income and loan-to-deposit ratios, deepening corporate relationships and improved distribution networks are expected to improve its performance.

Additionally, the bank anticipates benefitting from a favourable retail loan mix shift, lower-cost funding, stable credit costs and improved CASA ratio, leading to sustained NIM expansion and improved return on assets, analysts at Geojit Financial Services had said in Q1FY25 result update. The brokerage is optimistic about the company's long-term growth prospects and, therefore, reiterates a 'Buy' rating on the stock with a revised target price of Rs 1,869 based on 2.5x FY26E BVPS.