Nifty indices rejig expected to shake up stock flows
A Nuvama expert expects the highest inflows in Shriram Finance, followed by HDFC Bank and Jio Financial Services
The semi-annual rebalancing of Nifty indices, from 28 March following the rejig on 27 March, is expected to significantly impact stock flows.
Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research, expects substantial inflows for Shriram Finance Ltd, HDFC Bank, Jio Financial Services, NTPC, Adani Power, among others.
State Bank of India (SBI), UPL Ltd, ICICI Bank, Oil & Natural Gas Corp., Coal India, Reliance Industries, and Kotak Mahindra Bank, on the other hand, will see some of the biggest outflows. This reshuffling is part of the National Stock Exchange's (NSE) systematic biannual review, aimed at ensuring indices accurately reflect current market conditions. In the wake of the review, exchange-traded funds and mutual funds tracking these indices also undergo rebalancing to synchronize their portfolios with the updated compositions, critical for maintaining proper asset allocation.
Cumulatively (net of all passive indices), the highest inflows are likely in Shriram Finance ($188 million), HDFC Bank ($94 million), Jio Financial Services ($80 million), NTPC ($66 million), Adani Power ($45 million), and Power Finance Corp or PFC ($45 million), says Pagaria.
Meanwhile, SBI ($103 million), UPL ($95 million), ICICI Bank ($77 million), ONGC ($32 million), PI Industries ($32 million), and Coal India ($31 million) are among the top stocks likely to have outflows, according to Nuvama Alternative & Quantitative Research.
On the benchmark Nifty 50 index, Shriram Finance could see inflows worth $260 million, as it replaces UPL in the Nifty 50 index. UPL, on the other hand, is expected to face outflows of nearly $95 million on its exclusion, adds Pagaria.
The exclusion of UPL from the Nifty 50 follows its removal from the Nifty 100, the parent index of the Nifty 50. In contrast, Shriram Finance's inclusion was based on having the highest sixmonth average free-float market capitalization among the contenders, as announced by the NSE on 28 February.
Other Nifty 50 stocks expected to see significant movements are: Mahindra & Mahindra with anticipated $42 million influx, followed by Bharti Airtel with $26 million, and Axis Bank with $18 million, Pagaria said.
He said HDFC Bank’s weightage in the Nifty Bank index will rise to 29.1% from 25.6%, resulting in inflows of $123 million. Conversely, SBI may see an outflow of $95 million due to a reduction in its weightage in the index to 9.1% from 11.8%. The Nifty Next 50 index will welcome new entrants such as Jio Financial Services, PFC, Adani Power, REC, and Indian Railway Finance Corp Ltd, anticipated to attract inflows ranging from $23 million to $80 million.