what is the impact of HDFC-HDFC bank merger to index funds and ETF’S? So fund managers has to sell all the HDFC as well as HDFC bank shares? will it impact the returns of NIFTY 50 index fund & ETFS? will it increase the tracking error?
Mumbai: ICICI Securities said the upcoming semi-annual changes to the Nifty wherein Adani Enterprises NSE 0.13 % is likely to replace Shree Cement NSE 0.56 % could be ‘dwarfed’ by the impact of the impending HDFC Bank-HDFC merger. The brokerage said the merger will likely result in an unprecedented 14% of the Nifty’s weight (HDFC+HDFC Bank) getting replaced by two new stocks with a combined w …
That’s how it works I think. I remember even motherson Sumi was first removed from all indices before it’s Demerger. Once the entire process is completed, if it satisfies the conditions then it will re enter nifty50.
What will happen to Bank Nifty? HDFC Bank has massive weightage and most allocation. I wonder if the bank nifty index behaviour will change for good, as there will no longer be an entity named hdfc bank commanding tat much weightage.
I feel bank nifty will become more volatile. When HDFC bank is there it doesn’t usually move more than 3 percent on either side per day. And since it has highest weightage it was controlling the movement to some extent.
But when it comes to nifty I feel volatility will reduce. Once the merger was announced both HDFC and HDFC bank had to move in the same direction. The combined weight is 14 percent. Unless reliance moved in the opposite direction, it was difficult for other scrips to nullify this movement.
Whatever I have said above is just out of observation and I have not verified it with real data removing HDFC out.
Pretty sure HDFC Bank (acquirer) won’t be removed from any of the indices. HDFC (acquiree) will be removed from Nifty 50 and other indices once the merger date draws closer. That is still 1-2 quarters away I think.
This is similar to how Mindtree (acquiree) was removed from Nifty IT, Nifty Next 50 and other indices, but L&T Infotech (acquirer) wasn’t removed from any index.
By combining with HDFC Ltd, HDFC Bank will be able to offer mortgages to customers through its main products, allowing it to quickly expand its housing loan portfolio. Mortgage exposure for the bank currently stands at 11%, but after the merger, it will increase to 33%, a 200% increase.