Signage for the CNX Nifty Index is displayed in the atrium of the National Stock Exchange of India building in Mumbai, India, on December 16, 2016. (Photographer: Dhiraj Singh/Bloomberg)

Nifty Rejig: Britannia Industries Will Replace HPCL In Nifty 50

Britannia Industries Ltd. will replace state-run oil retailer Hindustan Petroleum Corporation Ltd. to enter the Nifty 50 Index from March 29. The replacement will also be applicable to Nifty 50 Equal Weight Index.

The indices are reconstituted twice every year based on data for six months ending January and July. The last change happened in August 2018 when Lupin Ltd. made way for JSW Steel Ltd.

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. HPCL had a free-float market cap of Rs 18,020 crore, the smallest market cap among Nifty 50 constituents. Britannia’s is more than twice of that.

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.

According to criteria, Godrej Consumer Products Ltd. was the other company that was eligible to enter Nifty 50.

After the inclusion, Motilal Oswal sees an inflow of nearly $68 million (about Rs 480 crore) in Britannia owing to the rebalancing of index funds which is expected to come in with a weight of 80 basis points versus HPCL’s weight of 40 basis points.

Also read: The Stocks Most Likely To Exit And Enter Nifty 50

Changes were also made to the Nifty Next 50 and Nifty 100 and the Nifty 500 indices among others.

The full list of changes can be seen here:

NIFTY Reconstitution.pdf