HDFC merger - BANKNIFTY composition & settlement process

  1. What will happen to the #BANKNIFTY index composition after the merger?

  2. If someone owns only #HDFCBANK shares (and does not own any of #HDFC shares). How will the settlement happen?

  3. If fewer than 25 shares are held, then how many shares of HDFCBANK will be credited? What about the settlement of partial shares?

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  1. Unless the composition rules are changed, nothing will happen except hdfcbank weightage will increase proportionally to current mkt cap( free float) formula.

  2. After merger, like ex corporate action date, the share will discover a new price, that will factor in the larger entity.

Most likely the following will happen, as explained here
3. What is a fractional share? (zerodha.com)

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Main reason one can attribute to today’s fall in HDFC twins and bank nifty

Exchange is readjusting weight calculation matrix to ensure there is no impact to current value.

Ideally there should be a massive impact for banknifty, finnifty and nifty50.

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Not for N50 bcos hdfc twins are constituents, but yes where hdfc isn’t in the other 2 indices.

There is restriction on max weightage of one stock in each index. The merged entity will exceed that limit. So it may make a difference.

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which restriction is this?

i know MF have a 10% rule for their composition but not seen any for N50.

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Not sure for N50. But for finnifty I think one stock cannot have more than 33 percent weight. Just remember reading something like this. There is also some restriction on max weight top 3 stocks can have.

My thinking was, N50 is always a basket of 50 stocks.
hdfc bank has 9.3, hdfc has 6.3 weightage. when they merge collective mcap remains the same and the merged weight will apply. And N50 will become N49, so they need add one more stock to it effectively raising the total mcap.

This should change the index points unless they adjust weights. 50th stock they add will have inflows and none will have outflows.

MF has a ceiling limit of 10% per stock, so they will have to sell hdfc-merged which will create a mass outflow.

Due to the level of this complexity I thought of not confusing everyone

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Let me also not confuse anyone. I just know about finnifty. I tried searching about nifty and I didn’t find anything on the net.
If nifty can have weight of more than 10 percent in one stock and mutual funds cannot then index funds will have higher tracking error too. Some changes will have to be made somewhere.
Again I am just speculative from little that I know.

RIL had crossed 10% in 2021 and MF were complaining about it but nothing happened in terms of changes.

ETFs / passive stuff may not have this 10% issue but MFs are actively managed.

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Well. I wasn’t aware that the rule isn’t applicable for passive funds.

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