Stocks of HDFC Life, HDFC, and HDFC Bank were trading higher on Wednesday after the Competition Commission of India's (CCI) gave green signal to mortgage lender HDFC in acquiring over 50 per cent stake in HDFC Life. HDFC Life at 9.25 am on Wednesday was quoting at Rs 651.65 on NSE, higher by 1.24 per cent from the previous close. On the other hand, HDFC, was also quoting 0.6 per cent higher at Rs 2,677.
HDFC Bank will be the surviving amalgamated entity after the proposed merger with HDFC, with hold over 50 per cent stake in HDFC Life. Similar approval has also come for the combined entity's shareholding in HDFC ERGO. As of March 2023, HDFC held 48.65 per cent stake in HDFC Life.
The Reserve Bank of India (RBI) in April had permitted HDFC Bank or HDFC to increase shareholding in both insurance companies to over 50 per cent prior to the effective date of the merger. After RBI's permission, the CCI approval is another step forward towards the merger.
According to Emkay and Nuvama Research, the decision by the RBI to hold more than 50 per cent stake by HDFC twins in insurance entities is a significant boost for HDFC Life. The management has not quantified the increase in the stake. The theoretical limit is 100 per cent. "We believe it should be 50-60 per cent. The Street had a high probability of this relaxation coming through. Last year, the management had explained that a higher stake would also mean higher cross-sell," Nuvama said.
The concern of a possible 19 per cent stake sale by HDFC-HDFC Bank (which currently holds 48.65 percent stake in HDFC Life) if the RBI had directed them to keep their stake below 30 per cent, is now eliminated. It is now confirmed that HDFC-HDFC Bank will acquire fresh or secondary over 1.35 percent stake before the merger completion, an Emkay report stated.
On Wednesday morning, the Sensex hit an all-time high after 137 trading sessions, crosses 63,583.10 previous hit on December 1, 2022.