Index changes triggered by suspension of trading in HDFC Ltd

The boards of HDFC Ltd and HDFC Bank Ltd had approved their merger on June 30, 2023 to create the fourth most valuable bank by market capitalization. Under the terms of the merger agreement, HDFC Ltd will merger into HDFC Bank Ltd effective July 01, 2023. The merger swap ratio was decided in the ratio of 42:25. That means; shareholders of HDFC Ltd will get 42 shares of HDFC Bank Ltd for every 25 shares of HDFC held by them. Pot the merger, the shares of HDFC Ltd will cease to exist and the shareholders of HDFC Ltd will hold 41% of HDFC Bank Ltd. As a result, effective July 13, 2023, HDFC Ltd will delist from the stock exchanges.

F&O implications of HDFC delisting

HDFC Ltd is  heavyweight in the Indian markets and for a long time has been among the ten most valuable companies in India by market capitalization. It has also been a part of futures and options from the very beginning, so the big question is what happens to the F&O contracts of HDFC Ltd that would be open. Obviously, since HDFC Ltd ceases to exist and also gets delisted, even the contracts that are benchmarked to the underlying stock will have to cease to exist. Here is how it will be done in a systematic manner.

• All existing open contracts (open interest) of HDFC Ltd in the July 2023 contracts, August 2023 contracts and September 2023 contracts will automatically expire on July 12, 2023, one day prior to the delisting of the stock of HDFC Ltd on July 13, 2023.
   
• In the meanwhile, between July 05, 2023 and July 11, 2023, fresh strike contracts may be introduced in the stock if so justified. However, no fresh strikes would be allowed on July 12, 2023 being the last day for F&O trading in HDFC Ltd.
   
• However, no contract of HDFC Ltd in the futures and options segment will be available for trading, effective from July 13, 2023. Traders will have the next few days to decide what to do with their open positions.

Index changes pursuant to delisting of HDFC Ltd

HDFC Ltd being a blue chip stock is part of most of the major indices; both in India and country specific indices abroad. The NSE has announced a complete list of 22 index changes triggered by the suspension of trading in HDFC Ltd post the merger with HDFC Bank Ltd. When a stock is delisted from the stock exchanges, the index changes happen at two levels. Firstly, there are the index changes triggered by the exclusion of the said stock from the indices where they are present (HDFC Ltd in this case). At the second level, when another stock replaces HDFC Ltd, it will create an open space in an existing lower level index, which has to also be filled up. A total of 22 indices in the NSE will get impacted by the suspension of HDFC Ltd from trading. That is captured in the table as under.

Data Source: NSE

The Index Maintenance Sub-Committee (Equity) of NSE Indices Limited has decided to make all the above replacements of the various stock indices as above on account of scheme of amalgamation of Housing Development Finance Corporation Ltd. with HDFC Bank Ltd. It may be noted that all the above changes will become effective from July 13, 2023 (close of July 12, 2023).

Out of the above 22 index changes 3 indices viz. Nifty 50 Index, Nifty Mid Cap Select Index and Nifty Financial Services Ltd also have F&O contracts pegged to them. Hence, all such contracts would also automatically expire at the close of July 12, 2023.