HDFC-HDFC Bank merger: Higher weight in index may impact large-cap schemes

Weight of combined entity in indices is expected to be about 14%; schemes may have to remain underweight on the stock as the single stock exposure in portfolio has to be capped at 10%

The merger between Housing Development Finance Corp (HDFC) and HDFC Bank may pose a challenge for some mutual fund (MF) schemes. The weight of the combined entity in the benchmark Sensex and Nifty is expected to be around 14 per cent.

This could mean active schemes may have to remain underweight on the stock as the single stock exposure in the portfolio has to be capped at 10 per cent. In addition, individual fund houses could have softer limits that prevent buying a stock above certain thresholds, say 5 per cent or 7.5 per cent of the overall scheme holding.