InvestorQ : With Adani Enterprises being included in the Nifty, what is the kind of flows that it will attract from global funds?
Debbie Mascarenhas made post

With Adani Enterprises being included in the Nifty, what is the kind of flows that it will attract from global funds?

Arti Chavan answered.
4 weeks ago

Adani Enterprises will replace Shree Cements in the Nifty from 30th September. That brings us to the question of how much flows this move will attract. Adani Enterprises is expected to attract inflows to the tune of $285 million or approximately Rs2,250 crore as it prepares to join the Nifty index. This will be the second Adani group stock to join the Nifty index after Adani Ports SEZ. These flows will be to correct the allocation imbalance by the exit of Shree Cements and the entry of Adani Enterprises into Nifty.

These inflows will largely come from passive investors like index funds and index ETFs that are pegging their portfolios to the Nifty as a benchmark. Passive funds allocate based on the index composition and do not take any active view on the market. Passive funds never try to beat the index. Instead, they structure a dumb portfolio that simply mirrors the index. As a result, when the underlying index composition changes, the portfolio changes too. In this case, global passive investors will be selling Shree Cements and buying Adani Enterprises.

The actual flow could be much more than this $285 million. That is because, typically these passive funds will need to acquire more than 7% of free-float shares in Adani Enterprises. Hence, even after the allocation is done, buying may continue. Adani Enterprises had met all the pre requisites for inclusion in the index including market cap, macro importance and the limited impact costs. The issue of minimal impact cost is important for inclusion in the principal indices because it will ensure that large orders don’t distort the price.

Changes are not confined to the principal Nifty index alone. There have been changes made to the other indices too; apart from the Nifty 50 index. For example, companies like Adani Total Gas, Bharat Electronics Ltd, Hindustan Aeronautics Ltd, IRCTC and Mphasis will now find a place in the Nifty Next-50 index. However, it is only in Nifty inclusions and exclusions that substantial fund flows happen.