The Nifty 50 index could soon see Bharti Infratel, Vedanta Ltd, Zee Entertainment, Tata Motors, and GAIL India exit from the index owing to the low average free-float market capitalization, and replaced with other heavyweights, according to a research report. Top contenders to replace these shares in the Nifty 50 index include Radhakishan Damani’s Avenue Supermarts, API manufacturer Divi’s Laboratories, private insurer HDFC Life, FMCG player Dabur, and PSU stock SBI Life, brokerage and research firm ICICI Direct said in the report. Nifty has already seen the exit of troubled private sector lender Yes Bank and the inclusion of Shree Cements earlier this year.
In a calendar year, a maximum of 10% of the number of stocks that constitute the index can be changed. With the rejig that saw Yes Bank exit the index, space has been left for four more changes to the Nifty-50 in the next shuffle in September this year. “We believe at least three out of the above five stocks could be replaced in the next rebalancing. There may be four replacements if stocks from the replacement group remain resilient,” ICICI Direct said. The combined weight of the four stocks that are likely to be pushed out is estimated to be nearly 1.5% in the Nifty.
The report expects the average price of the stocks, except for Zee Entertainment, to go down even in the best-case scenario. All these stocks are still down by over 30% so far this year on the National Stock Exchange.
Avenue Supermarts, the biggest contender among the stocks that are being seen as the likely replacements, so far does not have a Futures & Options contract. “As of now, DMart (Avenue Supermarts) is not part of F&O segment. If it does not get included in F&O, then it will not be added to the Nifty. In such a scenario, despite being the largest among the replacement pool, it will not be a part of the Nifty,” the report said. However, the possibility of DMart getting an F&O contract in the next couple of months can not be ruled out.
Divi’s Laboratories, HDFC Life, Dabur, and SBI Life are all included in the F&O segment. ICICI Direct, however, pointed out that Dabur and SBI Life are both almost at par, paving the way for stiff competition among the two scrips. The combined weight of likely replacement stocks is likely to be 2.9% in the Nifty against outgoing stock weightage of just 1.5%.
The rebalancing, which ICICI Direct thinks is one of the biggest in recent history could also see the pharma and FMCG sector increase their cumulative weightage on the index while that of the automobile, telecom, metals is likely to fall. The media sector’s weightage will be entirely wiped out with Zee Entertainment exiting the index.