InvestorQ : Can you tell me about the proposed changes to the key Nifty indices?
Katherine Gonsalves made post

Can you tell me about the proposed changes to the key Nifty indices?

rhea Babu answered.
12 months ago

As part of the half year review, the major NSE indices are due for a review in August 2022 and the changes will be effective from September onwards. There are likely changes to the Nifty 50 and to the Nifty Next 50. For your records, the Nifty Next 50 is a residual index as it is formed by taking the NSE 100 index and removing the Nifty 50 stocks from that list. In the last February review, digital players like Paytm, Nykaa and Zomato were added to Next 50.

According to a report, Adani Enterprises is most likely to enter the Nifty 50 large cap index in the next semi-annual index review of NSE, which is scheduled in August this year. It is expected that Adani Enterprises could come into the Nifty and replace Shree Cements which has been underperforming due to pressure of power and fuel costs. The next rebalancing of indices will be announced in August and will be effective from September end this year.

Buy why are inclusions and exclusions so important. That is because it results in substantial flow readjustment by passive index funds and index ETFs, which tend to be benchmarked to the Nifty index. It is estimated that the inclusion of Adani Enterprises in Nifty 50 index could result in rebalancing inflows of $183 million in the stock. However, the exit of Shree Cements from the index could lead to outflows of $94 million by passive funds and ETFs.

More interesting will be the changes to the NSE Next 50 index. One inclusion most likely to happen is the recently listed stock of LIC. LIC already ranks among the top 10 stocks on the NSE in terms of market capitalization. Apart from LIC, the other stocks that could enter the Nifty Next 50 are Tata Power, Adani Wilmer and IRCTC Ltd. Of course, it is also likely that Shree Cements may end up moving from the Nifty 50 index to the NSE Next 50.

In addition, there will also be changes expected in the sectoral indices. For example, Persistent Systems is expected to enter the IT index and this shift is likely to infuse $20 million of inflows into Persistent Systems. Persistent is most likely to replace LTTS. The banking index and other indices are unlikely to see any perceptible change.