HDFC and HDFC Bank are facing a downturn in their share prices on the Nifty 50 index. Nuvama Alternate Research has suggested that the merged entity may see outflows in the range of $150 million to $200 million due to MSCI's recent announcement regarding the potential treatment of the merged entity on its indices. MSCI intends to add the merged entity of HDFC Bank and HDFC to the large cap segment of MSCI Global Standard index, but with an adjustment factor of 0.5. The adjustment factor, which is the weightage of a stock assigned within a particular index, has been revised down from 1 to 0.5 by MSCI. This change in adjustment factor will result in outflows in the range of $150-200 million, according to Nuvama. Previously, the weightage of the merged entity in the index would have doubled, leading to incremental inflows of $3 billion, if the foreign room had remained above 15 percent.
The merged entity is expected to have a slightly lower weight of about 6.5 percent in the MSCI India Index, compared to HDFC's current weight of 6.74 percent. The fall in share prices of HDFC and HDFC Bank is contributing over 120 points to the Nifty 50 downside, but the fall in the index is being offset by other banking names like ICICI Bank and Axis Bank. The merged entity's foreign room is expected to be marginally above 15 percent, which is the minimum threshold required by MSCI for inclusion in its index. MSCI has tweaked the adjustment factor to avoid excessive volatility and will continue to monitor the event and make further announcements as more information becomes available. In conclusion, the merged entity of HDFC Bank and HDFC may see outflows in the range of $150-200 million due to MSCI's revised adjustment factor, which has had a negative impact on the share prices of HDFC and HDFC Bank.
Since both HDFC Ltd and HDFc Bank are down in trade due to this development, could this be a good opportunity for long-term investors to accumulate?
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