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In a major revision to India’s leading stock market index, the National Stock Exchange (NSE) has declared that Zomato and Jio Financial Services will replace Britannia Industries and Bharat Petroleum Corporation Limited (BPCL) in the Nifty 50 index. The change will take effect from March 28, 2025.
What is the Semi-Annual Rebalancing?
The Nifty 50 index is reviewed on a semi-annual basis to verify that the changing market landscape is accurately portrayed. The procedure involves assessing and reformulating the constituents of the index in light of certain guidelines. The process of review occurs bi-annually, using cut-off points of January 31 and July 31. The average statistics from the last six months are evaluated at every review to determine whether stocks merit entry or deletion. A notice of four weeks is given to market participants prior to making any changes in order for investors to make appropriate adjustments to their portfolios. Stock Selection Criteria for the Nifty 50
Stocks to be included in the Nifty 50 index are regulated by a pool of selection criteria aimed at preserving the strength and applicability of the index. Some of the important parameters include:
Market Capitalization: Firms should have a high free-float market capitalization. In particular, for a stock to qualify, its six-month average free-float market capitalization must be at least 1.5 times the smallest firm in the current index.
Liquidity: Stocks should be highly liquid, with ease of trading without major price movements.
Trading Frequency: For 90% of the observations, the stocks must have traded at an average impact cost of 0.50% or less in the past six months, with a portfolio size of ₹10 crores.
Listing History: There must be a minimum listing history, usually six months, but this may be less for companies listed recently.
Inclusion in Derivatives Segment: Stocks that are available for trading in the NSE’s Futures & Options (F&O) segment alone are considered for inclusion.
Impact on Index Weightage and Market Dynamics
The inclusion of Zomato and Jio Financial Services is expected to have an impact on the composition of the Nifty 50 and related fund flows:
Passive Inflows: Analysts expect Zomato’s addition to bring in passive inflows of around $702 million, and Jio Financial Services could experience inflows of around $404 million. These are due to index funds and exchange-traded funds (ETFs) rebalancing their portfolios to reflect the changed index composition.
Outflows for Exiting Stocks: On the other hand, the exclusion of BPCL and Britannia Industries can result in outflows of approximately $240 million and $260 million, respectively, as passive investment funds rebalance their holdings.
Sectoral Diversity: The arrival of Zomato, one of the dominant players in the food delivery business, and Jio Financial Services, a young player in the financial space, will increase the sectoral diversity in the Nifty 50. This development is an indicator of the rising dominance of financial services and tech companies in the Indian economy.
The bi-annual realignment of the Nifty 50 index is a tactical move to reflect the dynamic position of the Indian equity market. The upcoming addition of Zomato and Jio Financial Services reflects the rise of new-age businesses, while the departure of traditional players like BPCL and Britannia indicates the changing paradigms in market capitalization and sectoral weight.
Sources: Moneycontol & Economic Times