The benchmark Sensex on Friday crashed almost 695 points dragged down by the HDFC twins as index provider MSCI assigned a lower weightage to the merged entity, triggering concerns that it would lead to outflows of $150-200 million, against earlier expectations of fresh inflows of $3 billion into the bigger lender.

The 30-share BSE Sensex tanked 694.96 points or 1.13 per cent to settle at 61054.29. During the day, it plunged 747.08 points or 1.20 per cent to 61002.17. The broader NSE Nifty fell 186.80 points or 1.02 per cent to end at 18069.

Among the Sensex firms, HDFC Bank tumbled 5.80 per cent followed by HDFC which plummeted 5.57 per cent.

“The Indian market was dragged down by heavy selling in HDFC twins on fears of post-merger fund outflow. In addition, the cues from global peers were lacklustre as the ECB raised rates by 25 bps and signalled the need for further rate hikes.

“Wall Street has witnessed prolonged selling pressure due to apprehensions in the banking sector about the strength of regional banks,” said Vinod Nair, head of research at Geojit Financial Services.

The shock to investors came after MSCI said it would add HDFC Bank to the large-cap segment of its global standard indexes with an adjustment factor — which determines the weightage of a stock — of 0.5. This was lower than the market expectations of an adjustment factor of 1.

“MSCI intends to add HDFC Bank to the large-cap segment of MSCI Global Standard Indexes with a foreign inclusion factor (FIF) of 0.37 after applying an adjustment factor of 0.5,” MSCI said in a statement. FIF is the number of outstanding shares of a listed firm that can be purchased by overseas investors.

HDFC has a weightage of 6.74 per cent in the MSCI India Index, and brokerages expect the weightage of the merged entity to come lower at 6.47-6.50 per cent.

The inclusion of a stock in an MSCI index is subject to its foreign room, or the proportion of shares that foreign investors can buy. MSCI requires foreign room to be at least 15 per cent.

If a security’s foreign room is less than 25 per cent and equal to or higher than 15 per cent, MSCI uses an adjustment factor of 0.5. In other words, the index provider will raise the adjustment factor in HDFC Bank to 1 if the foreign room is at least 25 per cent. HDFC Bank has a foreign ownership limit of 74 per cent.