The impending merger of IDFC First Bank and IDFC Ltd is poised to have significant repercussions on the weightage of banking stocks within the NSE indices, particularly the Nifty Bank index. With the record date for the merger set for October 10, adjustments to the indices will take place during the final 30 minutes of trading on October 9, 2023.
Impact on Nifty Bank Index
Following the merger, analysts predict an increase in the weight of IDFC First Bank in the Nifty Bank index. Conversely, other banking constituents may witness a reduction in their respective weights. According to insights from Abhilash Pagaria at Nuvama Alternative & Quantitative Research, these changes will be crucial for investors to monitor.
Projected Weight Changes
Nuvama’s estimates suggest that IDFC First Bank’s weight in the Nifty Bank index is anticipated to rise to 2.9%. This adjustment could lead to an influx of approximately $39 million in passive investments into IDFC First Bank’s stocks, signaling a positive outlook amidst the merger scenario.
Effects on Other Banking Stocks
As IDFC First Bank’s weight increases, significant outflows from other major banks are expected. Financial powerhouses such as HDFC Bank, ICICI Bank, and State Bank of India (SBI) are likely to see a slight decrease in their index weightings. Specifically, HDFC Bank is projected to face an outflow of around $11 million, with ICICI Bank expecting $10 million and SBI, Kotak Mahindra Bank, and Axis Bank facing $4 million each.
Further Outflows from Various Banks
IndusInd Bank could see outflows totaling $2 million due to reduced weight in the index. Additionally, smaller banks such as Bank of Baroda, Federal Bank, AU Small Finance Bank, and Canara Bank may each experience approximately $1 million in outflows.
IDFC First Bank – IDFC Merger Overview
The merger between IDFC Ltd and IDFC First Bank will officially take effect on October 1, 2024. Under the merger agreement, for every 100 shares held in IDFC Ltd, shareholders will receive 155 fully paid-up equity shares of IDFC First Bank. This ratio is vital for investors to understand as they prepare for the transition.
Record Date and Share Allocation
The record date for this merger is set for October 10, 2023. Shareholders of IDFC Ltd can expect to receive their IDFC First Bank shares by October 31, 2024, pending regulatory processes and clearances. This timeline is essential for investors to consider when planning their investment strategies.
Changes in Futures & Options (F&O) Contracts
In light of the merger, the F&O contracts for IDFC Ltd, originally scheduled to expire in October, November, and December 2024, will now conclude today, October 9, 2023. These contracts are set to be settled through physical delivery, incorporating physical delivery margins applied to open positions in accordance with established exchange guidelines.
Stock Performance on the Day
As of 2:20 PM, IDFC First Bank shares were recorded at ₹72.99, reflecting a decrease of 0.21%, while IDFC Ltd shares were trading slightly higher at ₹110.10, up by 0.14% on the BSE. Monitoring these performance metrics is crucial for stakeholders amid the ongoing shifts in the banking landscape.
Disclaimer: The views and recommendations expressed in this article are those of individual analysts or brokerage houses and do not reflect the stance of this publication. Investors are encouraged to consult certified financial experts before making any investment decisions.
