Adani Enterprises likely to enter Nifty 50 in upcoming semi-annual index review, Shree Cements may be excluded

Adani Enterprises likely to enter Nifty 50 in upcoming semi-annual index review, Shree Cements may be excluded

Adani Enterprises could be included in the benchmark NSE Nifty 50 index, while Shree Cements could witness exclusion in the forthcoming Semi-Annual Index Rejig, according to analysts at IIFL Securities. “Based on our working of NIFTY50 index selection methodology, we expect inclusion of Adani Enterprises (ADE) and exclusion of Shree Cements (SRCM) from the NIFTY50 index in the forthcoming Sep-2022 Semi-Annual Review,” the brokerage said in its note. It expects Index changes to be announced by third or fourth week of August and the same to be effective on 30 September (Adjustment on 29-Sep-22). 

Note that the review of Nifty 50 is undertaken semi-annually based on data for six months ending January and July. The replacement of stocks in the index (if any) is implemented from the last trading day of March and September. In case of any replacement in the index, a four weeks’ prior notice is given to the market participants. As part of the semi-annual reconstitution of the index, a maximum of 10% of the number of companies in the index (i.e. five companies) may be added in a calendar year.

Constituents of Nifty 100 index that are available for trading in NSE’s Futures & Options segment are eligible for inclusion in the Nifty 50 index. The latest composition of Nifty 100 including most recent changes whether announced or yet to be announced shall be considered eligible subject to availability of trading in NSE’s Futures & Options segment in such stocks.

Liquidity: For inclusion in the index, the security should have traded at an average impact cost of 0.50% or less during the past six months for 90% of the observations for portfolio of Rs 10 crore.

Differential Voting Rights: Equity securities with Differential Voting Rights (DVR) are eligible for inclusion in the index subject to fulfilment of specified DVR related criteria.

Float-adjusted market cap: Companies will be included if free-float market capitalisation is 1.50x the free-float market capitalisation of the smallest constituent in the respective index.

F&O criteria for stocks in Nifty 50: The stock must be available for trading in NSE’s Futures & Options segment.

Domicile: The company must be domiciled in India and traded (listed & traded and not listed but permitted to trade) on the NSE.

Trading frequency: The company’s trading frequency should be 100% for the past six months.

DMart still failing to make the cut

Although Radhakishan Damani’s Avenue Supermarts (DMart) fits the bill to enter Nifty 50 prior to Adani Enterprises, the stock is not part of the Futures & Options list, hence fails to make the cut. If the stock gets included in derivatives till the announcement date, then it will be the Nifty 50 member instead of Adani Enterprises. “Inclusion of DMART in F&O can derail our expectations,” IIFL Securities noted. The brokerage report said, “The analysis covers ~80% of the required data set which we believe gives us a fairly accurate outcome.”

Earlier in May, Abhilash Pagaria — Head, Edelweiss Alternative & Quantitative Research also stated that Adani Enterprises holds a high chance to dislodge Shree Cements. “In the upcoming Nifty September Review, according to our preliminary analysis for Nifty 50 we believe Adani Enterprises holds a high chance to dislodge Shree Cements. The only risk factor is that any sharp contra price move in either of the probable names can lead to a change in conviction,” Pagaria had said. The rebalancing of NSE indices will be announced in August and come into effect from September end.