On the back of the quarterly NSE indices rejig, scheduled today, domestic brokerage house Nuvama Alternative & Quantitative Research highlighted, that the stock of HDFC Bank is likely to see an inflow of $29 million.
Overall, along with HDFC Bank, stocks including ONGC, Adani Enterprises, ICICI Bank and Adani Ports & SEZ, together are expected to witness inflows worth $125 million, the report further informed.
Individually, as per Nuvama, ONGC will see inflows worth $27 million, Adani Enterprises worth $27 million, ICICI Bank worth $25 million, and Adani Ports and SEZ worth $21 million.
Meanwhile, Coal India is also expected to witness inflows worth $19 million, HDFC Life worth $18 million and NTPC worth $17 million, added the brokerage.
On the contrary, stocks including BHEL, IndusInd Bank, Axis Bank, Reliance Industries, AU Small Finance Bank, Bank of Baroda, NHPC and JSW Steel are likely to witness outflows worth $116 million, informed Nuvama.
According to the brokerage, BHEL is projected to witness outflows worth $28 million, whereas IndusInd Bank and Axis Bank are expected to see outflows worth $25 million and $16 million, respectively. Meanwhile, Reliance Industries, AU BANK, Bank of Baroda, NHPC and JSW Steel are also likely to see outflows worth $12 million, $10 million, $10 million, $8 million and $7 million, respectively.
"These changes shall become effective from June 30, 2023; adjustment will take place on June 29. The capping factor of stocks in all the Nifty Indices is realigned upon the change in equity, investible weighted factor (IWF), replacement of scrips in the index, periodic rebalancing and on a quarterly basis on the last trading day of March, June, September and December by taking into account closing prices as on T-3 basis, where T day is last trading day of March, June, September and December," the report noted.
On the back of this rejig, it sees HDFC Bank's weight in the Nifty Bank index rising from 26.3 percent currently to 27.3 percent.
The report further mentioned that LTIMindtree may enter the Nifty50 index in place of HDFC after the ex-date of the merger.
The merger of HDFC Ltd into HDFC Bank is likely to be effective from July 1. The boards of HDFC Bank and HDFC are scheduled to meet on June 30 post the market hours in order to approve the merger. Whereas, HDFC shares are likely to delist on July 13.
HDFC Bank and HDFC had announced their merger plan in April last year and subsequently received the approval of the National Company Law Tribunal (NCLT) later in 2022.
Post the merger, HDFC Bank will become the tenth-largest bank in the world. However, the stock has been underperforming the benchmark index for the past 3 years. But that is expected to end soon post the merger.
“HDFC Bank has been underperforming the Nifty for the last 3 years in spite of its decent growth. This underperformance is likely to change post merger. The bank which has an enviable track record and excellent execution capabilities will gain from the synergy unleashed by the merger. Presently HDFC Bank is trading at 13.5 times earnings which is a discount to the 5-year average PE of 20. From the Price to Book perspective also the stock is trading at 2.2 times vs the 5-year average PB of 3.5. Institutional selling to comply with the 10 percent holding ceiling has been weighing on the stock. This will be over once the merger is affected. The prospects of the merged entity look very bright and this will attract more institutional investment from sector-specific funds and ETFs which are not bound by the 10 percent ceiling,” explained V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
