The benchmark S&P BSE Sensex and the Nifty50 indices ended above their key psychological levels of 60,000 and 18,000, yesterday, cheering the merger. Besides, stock-specific action and other global cues will guide the indices. ’s Post 1,126,919 followers 7mo HDFCBank reported strong first-quarter earnings with double-digit growth in the bottomline on the back of lower provisions &. Against this backdrop, the two stocks’ movement will yet again be the key driver for the markets on Tuesday. From valuation standpoint, analysts say HDFC Bank's valuation can jump from less than 4x Price-to-Book Value to 5-6x Price-to-Book Value in 1-2 years. Investors, therefore, should be patient in order to accrue benefits from the proposed merger. Analysts fear, HDFC Bank’s effective CASA could go down to 35% from 47% post merger. Refinancing HDFC Ltd’s funding with low-cost deposits will be another key factor for the success of the merger. These low-yielding portfolios, the brokerage says, could be a drag on the merged entity’s P&L. According to early estimates by global brokerage Macquarie, HDFC Bank will have an excess SLR/CRR asset requirement of around 70,000-80,000 crore rupees and will need an incremental 90,000 crore rupees agriculture portfolio to meet PSL norms. The third overhang could be on the financials. This is because, domestic mutual funds, right now, can hold 10% of their entire corpus in a single entity. That apart, analysts say investors need to be cautious as far as FPI inflows in the merged entity are concerned. All these regulatory requirements, analysts say, will have to be watched. Moreover, RBI has been mulling capping a bank’s ownership in an insurance firm at 20%. But, they have to trim down the stake over a period of time. Presently, banks can own more than 50% stake in an insurance company. If the combined entity owns a bigger share, the merged entity might have to pare its stake over the next 15-18 months. Presently, HDFC owns nearly 48% stake in HDFC Life. This precedent, analysts believe, could prove to be true for the HDFC – HDFC Bank merger as well. Back in 2020, the banking regulator did not allow Axis Bank to single-handedly own a significant stake in the life insurance firm. However, the merger will have to stand the test of regulators, especially the Reserve Bank of India and the insurance regulator. Shares held by the housing finance company in the lender will be extinguished, making HDFC Bank a full-fledged public company. The shareholders of HDFC Ltd will receive 42 shares of the bank for 25 shares held, and existing shareholders of HDFC Ltd will, thus, own 41 per cent of HDFC Bank. In an unexpected announcement on Monday, HDFC Bank said that it will completely subsume its sister-firm HDFC in a share swap deal. However, the key word here is ‘if’ the merger sails through. The merger, if it sails through, will create India’s biggest financial behemoth by market-capitalisation. The Street, on its part, gave thumbs up to the merger with shares of both the financial entities skyrocketing up to 16% intra-day yesterday. The surprise announcement of HDFC and HDFC Bank’s merger took everyone by surprise.
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