After the Merger, 60 MF Schemes Will Have 5,000 Crore Shares of HDFC Bank
The high-profile merger between HDFC and HDFC Bank is nearing completion, and the resulting entity is expected to be a significant player in the financial industry.
This merger will create a large conglomerate with exposure to multiple mutual fund schemes, making it a compelling entity that will be hard to overlook.
However, the merger also brings certain challenges, particularly regarding the permissible holding of securities as defined by SEBI, the market regulator in India.
Expert analysis suggests that HDFC Bank’s shares, valued at Rs 5,000 crore, are held across 60 mutual fund schemes. This substantial holding could potentially exceed the limits set by SEBI, leading to a violation of regulatory norms.
These findings raise concerns about compliance with SEBI’s guidelines and the need for necessary actions to ensure adherence.
Exceeding the permissible holding limits in securities could have implications for the affected mutual fund schemes and the overall market ecosystem.
It is crucial for market participants, including HDFC and HDFC Bank, to carefully address and resolve any potential violations to ensure regulatory compliance and maintain market integrity.
As the merger progresses and the new entity takes shape, it will be essential for all stakeholders involved to closely monitor the situation, work towards resolving any compliance issues, and seek guidance from regulatory authorities to ensure a smooth transition and continued adherence to regulatory frameworks.
As per the regulations set by SEBI (Securities and Exchange Board of India), mutual fund schemes are prohibited from investing more than 10 percent of their total assets in a single security.
This rule applies to most mutual fund schemes, excluding exchange-traded funds (ETFs) and thematic funds, which have been granted an exemption from this specific requirement.
The 10 percent limit on investments in a single security aims to promote diversification within mutual fund portfolios, reducing the risk associated with concentration in a particular security.
By spreading investments across different securities, mutual fund schemes can achieve a balanced and diversified portfolio, enhancing the overall risk-reward profile for investors.
It is important for mutual fund managers to carefully monitor their investment allocations to ensure compliance with SEBI’s guidelines.
By adhering to these regulations, mutual funds can maintain transparency, mitigate risk, and safeguard the interests of their investors.
Mirae Asset Large Cap Fund Has the Highest Exposure
Mirae Asset Large Cap Fund has emerged as the mutual fund scheme with the highest additional exposure among the mentioned 60 funds.
With an estimated additional exposure of Rs 1,231 crore, this fund will experience the largest increase in its holdings. Notably, the presence of the HDFC group is notable within this scheme.
Following closely, HDFC Top 100 Fund (G) is expected to have the second-largest additional exposure, amounting to approximately Rs 720 crore. These figures indicate the significant impact and increased allocation of funds in these specific schemes.
Our calculations have also considered two specific schemes: Tata Quant Fund-Reg(G) and Invesco India Tax Plan (G).
These schemes have been analyzed in relation to the permissible limit, and it is observed that they exceed the limit by 5 percent. Notably, Invesco India Tax Plan (G) currently has a total Assets Under Management (AUM) of Rs 1,999 crore.
Following the merger, this scheme is anticipated to possess additional shares of HDFC Bank with a value of approximately Rs 101 crore.
Potential Scenarios Arising After the Merger
Based on a Reuters report, it is anticipated that SEBI will not grant special exemptions to mutual funds for non-compliance with the prescribed rules.
Following the merger, the fund will have a grace period of 30 days to rebalance its holdings and align with the regulatory requirements, as stated by Abhilash Pagaria, the head of Nuvama Alternative & Quantitative Research.
These situations highlight the importance of adhering to regulatory guidelines and prompt action to ensure compliance.
Market participants, including the mutual fund entities involved in the merger, should carefully monitor the transition process and take necessary measures to rebalance the holdings within the given timeframe.
By promptly addressing any non-compliance issues and realigning the portfolios, the funds can uphold regulatory standards, maintain market integrity, and safeguard the interests of their investors.
In response, he also stated, “The industry had anticipated this scenario. Fund managers have the flexibility to initiate portfolio adjustments promptly, ensuring the sale of their holdings within the designated 30-day timeframe.
Consequently, the stock’s performance is not expected to experience significant pressure, considering the substantial average trading and delivery volume of 5,000 crore over a 20-day period, which should effectively manage any potential impact.”
Market participants express confidence in the ability of smart money to manage the selling pressure.
Ali Azhar, a Chartered Accountant and Stock Market expert, commented, “HDFC Bank, being a high-quality stock, has a tendency to balance out in situations unrelated to its fundamentals.
The gap left by institutional investors will likely be filled by smart money from high-net-worth individuals and retail investors.”
Following a 6 percent decline on May 4, the shares of HDFC Bank experienced a partial recovery. However, since then, the stock has been trading down 1.4 percent.
As of June 15, the stock was observed trading at Rs 1,603 on the NSE. In early morning trading at 09:50 am, it showed a slight increase of 0.12 percent, accompanied by a trading volume of 14 lakh shares.
Disclaimer: The following offer information is provided solely for informational purposes. It is important to note that investing in the market carries inherent risks. Prior to making any investment decisions, it is strongly recommended to consult with a qualified expert. We do not endorse or recommend any specific investments.
