Infotech Shares May Find Slot In S & P Cnx Nifty

The National Stock Exchange plans to include information technology (IT) stocks in S&P CNX Nifty when it revamps its index. India Index Service & Products, which owns S&P CNX Nifty, will meet this weekend or early next week to consider the revamping of this index to give a wider representation to IT stocks.

Surprisingly, till now both BSE Sensex and the S&P CNX Nifty ignored IT stocks on the grounds that their market capitalisation has been insignificant. However, since the beginning of the current year, almost all IT stocks have witnessed phenomenal appreciation in their value and the volumes have moved up sharply.

Almost a year back, top eight software stocks accounted for a mere 0.5 per cent of BSE's market capitalisation. Now these top eight stocks account for almost 5 per cent of BSE's total market capitalisation. This is quite significant for any market to ignore. According to a senior NSE official, the index committee meets every quarter to review various indices. "The committee decides, based on criteria laid down, which stocks move out of the index and which get in. The basic idea is to ensure that the index is representative of a broad market and its constituents are extremely liquid."

He said that if the committee decides on including software stocks it will be because they fulfil the criteria as against the fact that these companies have found favour with the market. Also there has been pressure from market players to include IT stocks in the index. These stocks are not included in either the BSE Sensex or the S&P CNX Nifty. NSE, with its index subsidiary, seems to have recognised this anomaly.

Another reason why IT stocks need to be included is to show the change in trend of the market's orientation towards the service sector.

While erstwhile market giants like ACC, GE Ship, ITC, Tisco, Telco, Castrol, etc have all reached the maturity phase of their respective life cycles, the IT companies are still in the growth phase of their life cycle.

Another justification for the demand could be the increased contribution of these companies to the GDP. Currently, services contribute about 40 per cent to the GDP, and these sectors are the ones which seem to give the investors attractive returns.