Passive breach in HDFC-HDFC Bank: MFs to offload Rs 5,000 crore shares

The impending merger between HDFC Bank and Housing Development Finance Corporation (HDFC) will see around 60 actively-managed equity mutual fund (MF) schemes breach the 10 per cent single stock exposure norm.

The passive breach will require fund managers offload shares worth Rs 5,000 crore in the merged entity up as actively-managed schemes can deploy a maximum of 10 per cent of their corpus towards a single stock. Given the prominence of HDFC twins, most fund houses have large exposure to these counters.

According to a news report, the Securities and Exchange Board of India is not in favour of providing a special dispensation to fund houses to exceed the 10 per cent cap.

An analysis done by Nuvama Alternative & Quantitative Research, shows schemes in the large-cap category will see the maximum breach at 18, followed by the equity-linked saving schemes (ELSS) category.

However, experts do not see much of an impact on the stock prices as the HDFC twins are highly liquid names and will be able to absorb the selling pressure. On the contrary, the merger is expected to result into inflows of over Rs 20,000 crore as the combined entity will get added to the MSCI India index. Currently, HDFC Bank is not part of any MSCI indices.

Fund managers also don’t expect any adverse impact on their scheme performance due to offloading of excess stock as they will have the option to sell in a staggered manner.