For semi-annual index review, rebalancing contenders are picked on the basis of their average market capitalization in the previous six months among a host of other factors.
Radhakishan Damani’s Avenue Supermart (DMart) and Naukri.com’s parent company Info Edge shares could be included in the benchmark NSE Nifty 50 index in the forthcoming semi-annual index rebalancing, according to brokerage firm Edelweiss. For semi-annual index review, rebalancing contenders are picked on the basis of their average market capitalization in the previous six months among a host of other factors. The brokerage firm has, however, cautioned that at this juncture there are no confirmed inclusions or exclusions from the index as both the possible inclusion candidates still have certain riders aligned with them.
Info Edge meets most of the criteria for inclusion but falls short on certain parameters. Edelweiss Securities highlighted that the index is marginally short of the requirement of 1.5 times the average free-float market cap of the smallest constituent in the Index. “The counters average free-float market cap as on June 17 is 1.45x of Indian Oil Corp. The trading days till July 30 will be crucial to move the needle,” Edelweiss said in a report.
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Info Edge share price has gained only 3% in the last six months, seeing some volatile trading along the way. The stock currently trades at Rs 4,810 per share. Info Edge has a ‘Hold’ rating from Edelweiss owing to steep valuations.
Radhakishan Damani’s DMart is also expected to make the cut in the Nifty rebalancing but falls short of requirements for not being part of derivatives. “Interestingly, stock has been qualifying for Derivative Inclusion from last couple of quarters, but the final call of F&O inclusion is in the discretion of SEBI and as per all past inclusions it’s very subjective,” the report said. They added that if DMart is included in F&O before the end of August, the stock may be added to Nifty 50 as well. DMart share price has soared 26% in the last six months to now trade at Rs 3,353 per share.
For any of these two stocks to be included in the Nifty 50, Edelweiss sees India Oil Corporation as the mostly likely exclusion.
Possible fund flows
The report added that Info Edge’s inclusion in the Nifty 50 index will see the result in a weightage of 55 basis points translating to inflows worth $110 million. Meanwhile, if DMart is added to the index it will see a weightage of approximately 72 basis points resulting in inflows worth $140 million.
The exclusion of Indian Oil would result in a weight reduction of 43 basis points resulting in an outflow of $82 million.
Bank Nifty rebalancing
Edelweiss believes there are no stocks that qualify to be included in the Bank Nifty index. “Only Yes Bank meets most of the criteria, but it is a non-F&O constituent and as per our analysis (with current set of data) the stock does not qualify to get introduced in derivatives,” they added.