Inclusion of Nestle to help boost Nifty50 P/E by 20 bps in FY20

Published: August 30, 2019 1:55:17 AM

Analysts believe the Nifty is set to be more expensive in FY20 with even more high P/E stocks set to enter the index.

Nestle India, Nifty 50, FMCG companies, Britannia, Yes Bank, P/E stocks, Nescafe, KitKat, mutual funds, HULThe manufacturer of Nescafe and KitKat will join other FMCG companies like HUL, ITC and Britannia in the benchmark, taking the sector’s weight to 9.2% on the index.

By Shashank Nayar

Nestle India is set to be included in the benchmark index — Nifty 50, replacing housing finance lender Indiabulls Housing Finance. Analysts believe the new inclusion would lead the Nifty price/earnings multiple to rise by nearly 20 basis points to 18.74x in FY20. The manufacturer of Nescafe and KitKat will join other FMCG companies like HUL, ITC and Britannia in the benchmark, taking the sector’s weight to 9.2% on the index.

Analysts believe the Nifty is set to be more expensive in FY20 with even more high P/E stocks set to enter the index.
Nestle, which joins the Nifty after a gap of 16 years, has a high P/E at 71x. “While the quality of the Nifty is improving, it will also get more expensive as even more high P/E stocks are set to join the index,” said Vinod Karki, Vice President, ICICI Securities.

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HDFC Life, another high P/E stock, is set to join the Nifty, replacing Yes Bank in the March, 2020 review, added Karki. Market participants believe the rejig, effective from September 27, will trigger buying worth Rs 750 crore in Nestle by exchange traded funds (ETFs). At a time when foreign investors have been underweight on consumer staple stocks, domestic investors like mutual funds have been comparatively optimistic.

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