Nifty Rejig: Nestle To Replace Indiabulls Housing Finance In Nifty 50 From Sept. 27
The indices are reconstituted twice every year based on data for six months ending January and July.
Nestle India Ltd. will replace mortgage lender Indiabulls Housing Finance Ltd. in the benchmark Nifty 50 Index and Nifty 50 Equal Weight Index from Sept. 27.
The indices are reconstituted twice every year based on the data for six months ending January and July. The last change happened in February when Hindustan Petroleum Corporation Ltd. made way for Britannia Industries Ltd.
After the inclusion, Edelweiss Research expects an inflow of nearly $112 million in Nestle India owing to the rebalancing of index funds which is estimated to come in with a weight of 91 basis points. Indiabulls, which had a 34 basis point weighting, is expected to see an outflow of $41 million from the rejig.
Indiabulls Housing Finance’s stock has had a rough run this year. It has fallen 46 percent in 2019. Moody’s Investors Services has also downgraded its credit rating with renewed pressure on cost and availability of funds. The housing financier has also witnessed a deterioration in asset quality in the quarter-ended June with impaired loans growing 57 percent sequentially.
Nestle, on the other hand, stood out among consumer goods makers as the stock outperformed the Nifty FMCG index. The maker of Maggi noodles and Nescafe instant coffee has grown faster than most other consumer goods makers in the first half of the current year and even in 2018. More than 96 percent of the analysts tracked by Bloomberg have a ‘Buy’ recommendation on the stock with a 12-month return potential of nearly 29 percent. Shares have jumped 13 percent so far this year.
Criteria For Selection
One of the criteria the National Stock Exchange follows to select the Nifty 50 constituents is the free-float market capitalisation of the company. This should be at least 1.5 times that of the smallest member of the index, according to the NSE methodology document.
The second is impact cost or the cost of executing a transaction in a given stock, for a specific predefined order size at any given point of time. A stock needs to have enough liquidity where large orders can be executed without incurring an impact cost greater than 0.5 percent.
Other criteria for inclusion are:
- The stock should be available for trading in the Futures & Options segment.
- Companies eligible for inclusion in the Nifty 50 should have at least 10 percent of its stock available to investors.
- The company must be domiciled in India and available for trade on the NSE.
Other Changes
The full list of changes in all indices can be seen here: