Housing Development Finance Corporation (HDFC) merged with its subsidiary HDFC Bank on July 1, 2023, following which shares of HDFC ceased to exist on bourses from Thursday, July 13.
The HDFC, HDFC Bank merger created the world’s fourth largest bank of the world after JP Morgan Chase & Co, Industrial and Commercial Bank of China Ltd (ICBC) and Bank of America Corp. After this merger, HDFC Securities, HDFC AMC, HDFC Ergo GIC, HDFC Capital Advisors and HDFC Life Insurance have become the key subsidiaries of HDFC Bank.
Existing shareholders of HDFC will own about 41 per cent stake in HDFC Bank. Every HDFC shareholder will get 42 shares of HDFC Bank for every 25 shares they hold.
Here are the five key changes that will happen after HDFC’s exit from bourses:
1. Change in weight of HDFC Bank in Nifty50: According to an analysis by Abhilash Pagaria, Head of Nuvama Alternative & Quantitative Research, the revised weight of HDFC Bank will be 14.43 per cent in the Nifty50 index which will be the highest weight of any single constituent in the index.
Shrey Jain, Founder and CEO of SAS Online – India’s Deep Discount Broker pointed out that following its merger of HDFC and HDFC Bank, the latter’s weightage in the Nifty50 has surged to an impressive 14.43 per cent. This elevation has propelled HDFC Bank ahead of Reliance Industries in terms of weightage, securing its position as the anchor for the benchmark index, effective July 13.
2. Change in weight of HDFC Bank in Nifty Bank: HDFC Bank will see an upward weight revision to 29 per cent from 27 per cent in the Nifty Bank index.
“In the Nifty Bank index, HDFC Bank’s weightage will experience a significant boost, increasing from 26.9 per cent to 29.1 per cent. Meanwhile, ICICI Bank, the second-largest private bank and previously the second-largest weight in the index, will witness a slight decline in its weightage from 24.4 per cent to 23.3 per cent,” said Jain.
3. Changes in Sensex, Nifty: As HDFC shares ceased to exist, shares of LTIMindtree took their place in the Nifty50 index while in the Sensex index, JSW Steel replaced HDFC. Jindal Steel entered the Nifty Next 50 index after the exit of LTIMindtree from it.
4. The impact on Bank Nifty, Nifty: HDFC Bank has now the highest weight in Nifty which means its movement will significantly influence the performance of both Nifty and Bank Nifty. The stock, along with the stock of Reliance Industries, will have a heavy impact on how these indices move.
“Post the merger of HDFC – HDFC Bank, the weightage of HDFC Bank has increased to 14.4 per cent and 29.1 per cent in Nifty and Nifty Bank, respectively. With HDFC Bank now commanding the highest weightage in both indices, the direction of the benchmark indices is likely to become more lop-sided,” said Shreyansh Shah, Research Analyst at Stoxbox.
“Following the merger, we remain positive on HDFC Bank due to the integration benefits from the merger, compelling valuations of the merged entity, higher cross-selling opportunities and distribution leverage for the bank, and erstwhile prudent lending and strong deposit franchise of the lender. We believe that HDFC Bank is likely to positively contribute to the indices based on strong fundamentals and the anticipated passive flows from index funds and ETFs,” said Shah.
Read more: HDFC merger effect: RIL, TCS, ICICI Bank may see weight adjustment in Nifty; many stocks to see inflows, outflows
5. HDFC Bank to become second largest firm: The overall market capitalisation (mcap) of HDFC Bank will now be over 14 lakh crore which will make it the second largest firm, after Reliance Industries, in terms of mcap in India. TCS, which was at the second spot, will now slip to the third place with a mcap of nearly 12 lakh crore.
Read more: HDFC Bank HDFC merger: What this twins merger mean for Indian stock market — explained in five points
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Disclaimer: The views and recommendations given in this article are those of individual analysts and brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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