InvestorQ : What will be the impact of these changes that are proposed in the Nifty Index?
Mahima Roy made post

What will be the impact of these changes that are proposed in the Nifty Index?

Aditi Sharma answered.
2 years ago

First and foremost, this shift in the index will result in improved flows from domestic and global index funds and ETFs. Let us look at the domestic scene first. Index shifts matter because they determine direction and intensity of flows from index funds and index ETFs. They continue to be among the most important passive investors in India.

Some of the ETF weight reallocation is quite interesting. For example, Vedanta has a weight of 44 bps in the index while HDFC Life will come into the index with a weightage of 90 bps. This will result in an inflow of Rs.820 crore from ETFs and index funds into HDFC Life and that was one of the reasons the stock was in the positive last week.

SBI Life will have a weight of 70 bps in the index. SBI Life will see inflows to the tune of Rs.650 crore and these are significant flows in the case of these insurance companies. There is also one more change in the Nifty with Divi coming in place of Bharti Infratel. But the broad theme for ETFs and index funds will be the insurance gets added to their portfolio.

The significant outcome of this shift will be that insurance finally gets representation in the indices. Insurance is a big growth area and the index needs to represent that Insurance penetration in India is abysmally low by global standards. This inclusion will give insurance companies better visibility and once again spruce the share of BFSI in the index.

We must not miss out an important implication here. Most likely, the markets are paving the way for the eventual listing of LIC. The government has already given the green signal for the IPO and the process could start anytime soon. By then if insurance has a significant weight in the index, then LIC gets a better benchmark.