Britannia may replace HPCL on Nifty, says brokerage firm

As the Nifty 50 index is widely tracked by exchange-traded funds, any changes to its components affect the liquidity of a stock. Typically, a stock that is included sees capital inflows depending upon the weightage assigned to it

Consumer goods manager Britannia Industries could replace state-owned oil marketing company Hindustan Petroleum Corporation (HPCL) on the benchmark Nifty 50 index, says domestic brokerage ICICI Direct. Besides, JSW Steel or Godrej Consumer Products, also have a fair chance of replacing Lupin on the index, it says.

According to the brokerage, NSE could announce changes to its index next month, which are likely to become effective from the start of the October series derivatives contract.

As the Nifty 50 index is widely tracked by exchangetraded funds (ETFs), any changes to its components affect the liquidity of a stock. Typically, a stock that is included sees capital inflows depending upon the weightage assigned to it. Similarly, a stock sees capital outflows following its exclusion.

There are two broader reasons for replacement of a stock on an index. These include corporate action such as delisting or merger or availability of a better candidate. In case of a better candidate, the stock to be included should have at least 1.5 times the market capitalisation of the stock that is to be excluded. ICICI Direct has filtered the stocks which fulfil the criteria for inclusion in the Nifty at current market price.

The market values of Britannia, JSW and Godrej Consumer are currently over 1.5 times that of HPCL and Lupin. Within the three, the Jindal Group company has the highest market capitalisation on a freefloat basis. The components of the Nifty 50 index are reviewed on a half-yearly basis. The exchange gives a four-week notice to the market before making changes to the index. Also, not more than 10 per cent of the stocks can be replaced in a calendar year.

"The October series review would be the second and last change for the current year. In the last review, three changes were made in the Nifty. Thus, we can expect two more changes in the Nifty," says a note by ICICI Direct.

In the last round of changes, that took effect in April, Bajaj Finserv, Grasim Industries and Titan Company were included in the index, while Ambuja Cements, Aurobindo Pharma and Bosch were excluded.