On August 13, HDFC Bank's shares fell nearly 3 percent to Rs 1,614 each. The dip occurred when investors voiced unhappiness with the MSCI Global Standard Index's decision to boost the bank's weightage in two phases rather than one, as well as the lower-than-expected weight rise.
The first adjustment, increasing the foreign inclusion factor (FIF) from 0.37 to 0.56, is scheduled on September 2, after the current rebalance. The second adjustment, increasing the FIF from 0.75 to one, is scheduled for November.
The Foreign Inclusion Factor (FIF) in MSCI indexes denotes the percentage of shares available to overseas investors in public equity markets. HDFC Bank's FIF of 0.56 shows that 56 percent of its shares are available to foreign investment inside the index. The last adjustment, bringing the factor to one, will take place in November, if HDFC Bank's FPI headroom remains above 20 percent.
Though MSCI boosted HDFC Bank's weightage, resulting in a $1.8 billion inflow, this occurred with a modest adjustment factor. The term "low adjustment factor" refers to the lowered weighting used by MSCI to determine a company's inclusion in an index.
According to June's shareholding statistics, HDFC Bank's foreign ownership was 54.83 percent, qualifying it for a boost in MSCI weight during the next August 2024 rebalancing. This amount of foreign ownership provides for more than 25% 'foreign room' in HDFC Bank, which is required by MSCI to examine the company at its full market-cap weight. Some market players believe that this inclusion might result in MSCI inflows of up to $5 billion.
Analysts at Nuvama had previously predicted inflows of $3.2 billion to $4 billion into HDFC Bank following the MSCI adjustment. However, they now expect $1.8 billion in inflows following the initial modification. Details on the second transfer are likely later this year.
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