HDFC Bank Stock Plummets 3% As MSCI Index Tweaks Weightage

The shares of HDFC Bank plummeted 3 per cent in the Tuesday trading session. The decline occurred as a result of investors became upset with MSCI Global Standard Index for deciding to raise the bank's weightage in two phases as opposed to one and for the weight shift to be less than anticipated.

HDFC Bank stock traded with 2.89 per cent dip at Rs 1,612 in the afternoon session on the National Stock Exchange (NSE). 

On September 02, after the current rebalance, the first adjustment will take place, increasing the foreign inclusion factor from 0.37 to 0.56. November is the planned month for the second adjustment, which will raise the foreign inclusion factor (FIF) from 0.75 to 1.

With a FIF of 0.56, HDFC Bank's shares in the index are available to foreign investment to the extent of 56 per cent. If HDFC Bank's FPI headroom remains over 20 per cent, the last adjustment bringing the factor up to one, will take place in November.

Despite the fact that MSCI gave HDFC Bank more weight, which resulted in an inflow of USD 1.8 billion, there was little adjustment factor used. The term "low adjustment factor" describes MSCI's decreased weighting when determining whether to include a business in an index.

According to shareholding statistics from June, HDFC Bank has 54.83 per cent foreign ownership, making it eligible for a rise in MSCI weight during the August 2024 rebalancing. 

With almost 25 per cent of HDFC Bank's shares held by foreign entities, the company satisfies the MSCI criteria that it be given the full weight of its market capitalisation. According to certain market participants, MSCI inflows of up to USD 5 billion could result from this inclusion.

Following the MSCI change, Nuvama analysts had previously projected inflows into HDFC Bank of between USD 3.2 billion and USD 4 billion. But after the initial adjustment, they are currently seeing inflows of USD 1.8 billion. The second move's specifics should be revealed later this year.

The private lender stock struggled to deliver any significant return in 2024 so far. The HDFC bank stock plummeted more than 5 per cent this year against the Nifty Bank return of more than 4 per cent.