Shares of mortgage lender Housing Development Finance Corporation (HDFC) and its associate HDFC Bank hit more than seven-month highs on Friday, rising nearly 6% in intraday trading.

While HDFC rose 5.7% to a high of Rs 2,649.7, HDFC Bank rose 6.1% to Rs 1,619 on the BSE. The stocks are trading at their highest levels since April 2022. In contrast, the S&P BSE Sensex was up 1.8% at 61,719 at 12:20 pm.

The rally came amid reports of a change in the rules of the MSCI index linked to mergers and acquisitions. MSCI has reportedly removed the minimum foreign room requirement.

According to the Macquarie report, the combined entity of HDFC-HDFC Bank may be included in the index, with the MSCI weight rising to 13% from 5.78%. It says to apply an adjustment factor of 1x, not 0.5x.

On April 4, 2022, HDFC and HDFC Bank boards approved two mergers of equals, subject to various regulatory approvals. It may take effect in about 15 to 18 months. HDFC shareholders will receive 42 shares of HDFC Bank for every 25 shares they hold.

HDFC Bank said the bank already has a huge opportunity due to the under-penetration of banking services in the country. The proposed merger adds a completely different dimension to the future.

Last Month, the National Company Law Tribunal (NCLT) agreed to hold a general meeting to approve HDFC’s proposed merger with HDFC Bank.

HDFC said in an October 14 regulatory filing that it would hold a shareholder meeting on November 25, 2022, to consider and approve the proposed merger.

Meanwhile, brokerage firm Sharekhan sees accelerated growth in HDFC Bank, strong growth in the retail, MSME and corporate sectors and healthy low-cost deposit mobilisation.

“The bank continues to build out its digital capabilities and franchise network, which could indicate future growth. The stock has underperformed its peers over the past 12 months. The bank is well-capitalised and able to manage its asset quality. Regardless of the economic cycle, can provide superior returns and gain access to future economic recovery,” the brokerage said in its September quarterly results update.

Shares of HDFC and HDFC Bank have risen 15% in the past month, compared with a 7.8% rise in the benchmark index. These stocks have recovered 29% and 25%, respectively, from a 52-week low hit on June 17, 2022.