Status quo likely in September review of Nifty but not for long

The composition of the Nifty50 index is unlikely to change during the semi-annual review, slated for September. The two key stocks in contention — Info Edge and Avenue Supermarts — are yet to fulfil the inclusion criteria, even as the cutoff date of July 30 nears. This despite the Nifty positions of state-owned Indian Oil and Coal India — the lowest-ranked index constituents, in terms of free-float market capitalisation — appear in danger.

For Info Edge to dislodge Indian Oil, its average free-float market cap between February and July has to be 1.5x higher than that of the oil marketing company. While the average free-float m-cap of Avenue Supermarts, the owner of retail chain DMart, is higher than that of Indian Oil, it is not part of the derivatives segment -- another criterion required for Nifty inclusion. The same is the case with Adani Green. Info Edge is part of the derivatives segment but its m-cap has just fallen short to make the cut.

“Info Edge is marginally behind in terms of the average free-float market capitalisation criterion ($5 billion and 3.7 per cent lower than 1.5x that of Indian Oil), while fulfilling other conditions,” says a note by ICICI Securities (ISec).

Analysts say Avenue Supermarts may still have a chance if the stock gets added to the futures and options (F&O) list.

"Avenue Supermarts and Adani Green Energy are both not part of the F&O list. Avenue Supermarts has the edge in terms of qualifying as an F&O stock,” Vinod Karki and Siddharth Gupta of ISec say in the note.

While these companies may miss making it to the widely-tracked and traded Nifty index, experts say it is only a matter of time before new-age stocks replace traditional companies in the index.

“Info Edge will be the first pure-play internet platform company to be included in the Nifty index as and when it qualifies. To put things into perspective, the Dow Jones Industrial Average still doesn’t have any of the internet platform companies, such as Amazon or Google, as its constituent, given the limitations of it being a price-weighted index,” say Karki and Gupta. 

Newly listed start-up Zomato is seen entering the index before the end of 2022. The company has zero per cent promoter holding but the bulk of the pre-IPO shareholding is locked in for a year.

“New large-cap internet platform companies like Zomato with high free-float market cap due to zero promoter holdings could be serious contenders for entry into the benchmark indices, going ahead,” the ISec note says.