HDFC Bank shares in focus as FTSE to raise stock weightage in its indices

HDFC Bank Ltd shares will be in focus on Tuesday, as index aggregator FTSE said the investability weightage of the private bank will rise to 1.52 per cent in the FTSE Emerging All Cap index from 0.81 per cent following the merger of HDFC. The rise in weightage would apply in three tranches and will be implemented by March 2024, FTSE said.

As per FTSE, the first tranche will be implemented in the September index review, the second one in the December review, and the third in March next year. As per some estimates, this weight increase weight increase across FTSE (All World & All Cap indices) would lead to inflows of $500 million in the September review.

To recall, FTSE announced potential changes for HDFC–HDFC Bank due to their merger on June 29. As per expectations, at the time of the merger, FTSE continued with the current free float shares of HDFC Ltd in the indices and renamed the constituent with the acquirer's name (HDFC Bank), resulting in no weight changes.

FTSE Russell said it considered client feedback on the potential impact on the company’s foreign headroom if the shares in issue and free-float update are implemented on a one-off basis.

"FTSE Russell proposes to implement the upweight of HDFC Bank in three tranches in conjunction with the September 2023, December 2023, and March 2024 index reviews, with the December and March tranches contingent on the company’s foreign headroom continuing to satisfy the minimum 10 percent headroom requirement," it said.

"For the forthcoming review (most likely on September 23), FTSE will likely combine the original HDFC Bank shares if there's sufficient liquidity, no foreign ownership restriction, and at least 10 per cent foreign headroom is available (which is currently the case). This could lead to a potential weight increase of around $1.5 billion. The announcement of any changes will be made on August 18 , 2023 and adjustment will take place on September 15," Nuvama Institutional Equities said earlier this week.

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