The current FII holding in IDFC is 53.7 per cent, slightly lower than the new cap, but the move will bring down IDFC's weightage in the MSCI benchmark. IDFC has around 1.1 per cent weightage in the MSCI index. MSCI may also remove the stock from its global benchmark.
In both cases, passive funds are likely to sell the stock, and hence the correction.
IDFC's decision to reduce FII holding seems to be in preparation for a banking license. According to Reserve Bank guidelines, FIIs can hold 49 per cent in banks.
IDFC was the top Nifty loser and traded 8.15 per cent lower at Rs 95.60 as of 12.55 p.m.