Stocks of Zee Entertainment, GAIL India, and Bharti Infratel could be excluded from the Nifty50 when the index is reconstituted next, suggests a July 30 report by IDBI Capital authored by A K Prabhakar, head of research at the Mumbai-based brokerage co-authored with Dhartikumar Sahu. These three stocks, according to IDBI Capital, are likely to pave way for SBI Life Insurance, Divi’s Lab, and Dabur India.
The Nifty50 broad-based index is reviewed twice a year based on six-month data ending January 31 and July 31. Eligibility criteria for newly listed security are checked based on the data for a three month period instead of a six month period. The Nifty indices, the IDBI report said, are computed using a float-adjusted weighted market capitalisation methodology, which takes into account the constituent changes in the index and corporate actions such as stock splits, rights issuance, etc., without affecting the index value.
Most of these stocks have recorded a negative return at the bourses thus far in the calendar year 2020 (CY20). While Divi’s Laboratories and Dabur India have gained 39 per cent and 7.3 per cent year-to-date (YTD), SBI Life Insurance, GAIL (India), Bharti Infratel and Zee Entertainment have lost 5 per cent to 52 per cent during this period, ACE Equity data show. In comparison, the Nifty 50 has lost nearly 9 per cent.
“At the time of index reconstitution, a company which has undergone a scheme of arrangement for corporate events such as spin-off, capital restructuring etc. would be considered eligible for inclusion in the index if as on the cut-off date for sourcing data of preceding six months for index reconstitution, a company has completed three calendar months of the trading period after the stock has traded on ex. basis subject to fulfillment of all eligibility criteria for inclusion in the index,” Prabhakar and Sahu wrote.
As per the norms, the stock to be added should meet the impact cost criteria and its free-float market capitalisation should be 1.5x of the free-float market capitalisation of the smallest constituent in Nifty50.
Recently, Anil Agarwal-controlled Vedanta was removed from all indices on the NSE ahead of its possible delisting, paving way for HDFC Life to be included in the Nifty50 index. The stock will be replaced by HDFC Life Insurance Company with effect from July 31.
In June, Vedanta had announced that the special resolution for voluntary delisting of the equity shares from BSE and NSE has been approved by the members with requisite majority. While 93.34 per cent of the votes were in favour of the proposal, 6.65 per cent voted against it, the filing said. The proposal required approval of at least 66.7 per cent of minority shareholders.