Nifty rejig: This Tata Group firm could replace GAIL in next review

FMCG firm Tata Consumer is expected to replace state-run GAIL in the Nifty50 index as part of the semi-annual reshuffle, say analysts at Edelweiss Securities and ICICI Securities.

The index is reconstituted semi-annually, considering six months data ending January and July, respectively, and a four weeks’ prior notice is given to the market participants.

In the last rejig, SBI Life Insurance and Divi's Laboratories had replaced Bharti Infratel and ZEE Entertainment Enterprises. READ HERE

GAIL currently has an estimated weight of 40 bps in the index, while Tata Consumer is expected to enter the index with a weight of 60 bps. The rejig would entail ETFs and index funds buying worth Rs 7.6 billion and selling worth Rs 5.1 billion, said ICICI Securities in a note dated January 13.

According to the Nifty index inclusion criteria, the stock should be a part of the F&O segment.
 

Currently, Avenue Supermarts has the highest free-float market capitalisation among non-Nifty companies, but as per the latest analysis done by the two brokerages, the stock doesn’t fulfil the criteria for F&O inclusion. However, ICICI Securities, clarified that if it does enter the F&O segment, it would replace Tata Consumer as the new entrant into the Nifty50 index.

Edelweiss in a note, dated December 23, 2020, said it expects index changes to be announced by the second half of February 2021, and the same should take effect on March 26, 2021 (adjustment on March 25, 2021). Meanwhile, ICICI Securities expects the changes to come in place on March 29, 2021.

Inclusion Criteria
 

Domicile: The stock must be domiciled in India and traded on the NSE.

Eligible Securities: The stock must be a constituent of Nifty100 index, and available for trading in NSE’s F&O segment.

Liquidity: The stock should have traded at an average impact cost of 0.50 per cent or less during the last six months for 90 per cent of the observations for a portfolio of Rs 100 million.

Float-Adjusted Market Cap: Average free-float market capitalisation should be at least 1.5 times the average free-float market capitalization of the smallest constituent in the index.

Listing History: A newly listed security is eligible if it fulfils the normal eligibility criteria for the index – impact cost, float-adjusted market capitalization for a three-month period instead of a six-month period.

Trading Frequency: The company’s trading frequency should be 100 per cent in the last six months.

Limit: A maximum of 10 per cent of the index size (by a number of stocks) may be changed in a calendar year. However, this limit shall not be applicable for exclusion on account of the scheme of arrangement.