Shares of HDFC Bank Ltd. dropped by 3.5% after touching a day’s high of Rs 1,632.40 on 13th August, as investors were disappointed by the MSCI Global Standard Index’s decision to increase the bank’s weightage in two stages instead of one, resulting in a lower-than-expected weight change.

The first adjustment to HDFC Bank’s foreign inclusion factor (FIF) in the MSCI index will raise it from 0.37 to 0.56 on 2nd September, after the current rebalancing. The second adjustment, increasing the FIF from 0.75 to 1, is planned for November.

The Foreign Inclusion Factor (FIF) in MSCI indices reflects the percentage of shares available to international investors. An FIF of 0.56 for HDFC Bank means 56% of its shares are open to foreign investment.

The final adjustment to a factor of 1 will happen in November, depending on HDFC Bank’s FPI headroom remaining above 20%.

MSCI’s increase in HDFC Bank’s weightage led to a USD 1.8 billion inflow, but the adjustment factor was low, meaning MSCI used a reduced weighting for the bank in the index.

With 54.83% foreign ownership as of June, HDFC Bank qualifies for the higher MSCI weight in the August 2024 rebalancing. This level of foreign ownership meets the requirement for more than 25% ‘foreign room,’ potentially attracting MSCI inflows of up to USD 5 billion.

At 11:14 AM, the shares of HDFC Bank Ltd. were trading 3.21% lower at Rs 1,606.75 on NSE.

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