IOC, Indiabulls Housing Finance Will Soon Replace Idea, BHEL In Nifty 50
The changes will be effective from March 31, 2017.
The National Stock Exchange's flagship Nifty 50 index will see a reshuffle starting March 31, as part of its semi-annual index rebalancing.
Indian Oil Corporation Ltd. (IOC) and Indiabulls Housing Finance Ltd. will replace Idea Cellular Ltd and Bharat Heavy Electricals Ltd. (BHEL) on the index, according to a media statement from India Index Services and Products Ltd. (IISL), an NSE group company that manages Nifty group of indices.
This will increase the weightage of financial services and energy sectors in the Nifty 50 index. Financial services, with 32.01 percent weightage, had the highest representation of all sectors as of January 31, 2017. Energy was the third most represented sector with 12.3 percent weightage. Consequently, the telecom sector with just 2.39 percent weightage will go even lower.
The 12-member Nifty Bank index will see Mumbai-based Bank of India Ltd. being excluded, and replaced with one of the country's youngest universal bank, IDFC Bank Ltd.
Click here to see the complete list of changes.
How Are Stocks Selected?
The IISL conducts an index rebalancing every six months to ensure that the Nifty accurately represents the market. The cut-off date for these rebalancing reviews is January 31 and July 31 of each year. The average data for six months ending on the cut-off date is considered for the review.
For a company to qualify for inclusion in the Nifty 50,
- It should have traded at an average impact cost of 0.50 percent or less during the previous six months for 90 percent of the observations for a basket size of Rs 2 crore. This is a measure of the liquidity of a stock as it reflects the costs incurred in actually trading an index.
- It should have a listing history of 6 months.
- It should be allowed to trade in the futures and options segment.
According to NSE’s website, these are the following scenarios when a stock is replaced.
- Compulsory changes like corporate actions or delisting: In such scenarios the stock with the largest free floating market capitalisation and satisfying the other requirements are considered.
- When a better candidate is available in the replacement pool: If the stock with the highest free float market capitalisation in the replacement pool has at least twice the free float market capitalisation of the index stock with the lowest free float market capitalisation.
However, a maximum of 10 percent of the number of stocks in the index can be replaced through the second scenario. In the case of Nifty 50, that amounts to five stocks.