Nifty rejig: Axis Capital predicts big churn; BSE set to replace Wipro, may spark Rs 5,500-cr inflow

Axis Capital has projected a key change in the Nifty 50 during the upcoming National Stock Exchange index review in September. As per Axis Capital, BSE is likely to enter the benchmark Index and Wipro is expected to move out. The brokerage house said the expected changes could trigger strong passive inflows into BSE shares, while Wipro may see sizeable selling from index-linked funds.

In a report dated May 18, Axis Capital said the projected changes may become effective from September 30, subject to the National Stock Exchange’s final review process. The brokerage also listed likely additions and exclusions in the Nifty Next 50 index.

Stocks entering benchmark indices usually attract buying from exchange traded funds and index mutual funds, while exclusions often see outflows as funds rebalance portfolios.

BSE may attract nearly Rs 5,500 crore in passive inflows

Axis Capital said the BSE is currently the strongest candidate for inclusion in the Nifty 50 based on free float market capitalisation and eligibility trends tracked by the brokerage.

According to the report, BSE could attract nearly $657 million in passive inflows if it enters the benchmark index. That translates to almost Rs 5,500 crore in potential buying by passive funds at current exchange rates.

“BSE is expected to witness the highest passive inflow among all probable inclusions,” Axis Capital said in the report.

The brokerage noted that BSE has already delivered strong recent gains ahead of the expected review. The stock has remained in focus due to higher derivatives activity, rising retail participation and steady growth in market-linked businesses.

An inclusion in the Nifty 50 usually results in compulsory buying by index funds that mirror the benchmark. Since the Nifty 50 is tracked by several domestic and overseas passive products, any entry often leads to a sharp jump in volumes around the implementation date.

Wipro may see outflows despite likely inclusion elsewhere

Axis Capital said Wipro is the leading candidate for exclusion from the Nifty 50 during the review cycle.

The brokerage estimated that Wipro could witness nearly $225 million in passive outflows, equivalent to around Rs 1,880 crore, if the stock exits the benchmark index.

The report added that Wipro is also expected to enter the Nifty Next 50 index. However, the inflows linked to that inclusion may not be enough to offset the larger selling pressure from a Nifty 50 exit.

“The stock is likely to face net passive outflows despite probable inclusion in Nifty Next 50,” Axis Capital said.

Axis Capital estimated that Wipro may attract around $62 million, or close to Rs 520 crore, through the expected Nifty Next 50 inclusion. Even after accounting for that, the stock may still face net selling pressure.

The information technology sector has remained under pressure in recent quarters due to slower discretionary spending by overseas clients. Large technology companies have also seen demand moderation across several verticals.

Polycab India among top inclusion candidates in Nifty Next 50

Axis Capital also identified several stocks that may enter the Nifty Next 50 during the review.

Polycab India featured prominently in the brokerage’s list of likely inclusions. Axis Capital estimated passive inflows of nearly $55 million, or around Rs 460 crore, if the stock gets added to the index.

“Stocks with improving free float market capitalisation continue to strengthen their eligibility for index inclusion,” Axis Capital said.

Polycab India has remained in focus due to growth in cables, wires and fast moving electrical goods businesses. The company has also benefited from stronger domestic infrastructure spending and housing demand.

The brokerage’s analysis suggested the company has improved its eligibility position during the review period tracked for the upcoming reshuffle.

Hitachi Energy India and Indian Bank may also enter

Axis Capital said Hitachi Energy India and Indian Bank are also among the probable entrants into the Nifty Next 50.

The brokerage estimated passive inflows of around $46 million, or nearly Rs 385 crore, for Hitachi Energy India. Indian Bank may attract close to $32 million, or around Rs 270 crore.

“The current projections are based on available market capitalisation and liquidity data during the review period,” Axis Capital said.

Hitachi Energy India has gained attention due to rising investments in transmission and power infrastructure. Indian Bank has remained supported by improving profitability trends and stronger momentum in public sector banking stocks.

Axis Capital said the estimates are based on current eligibility rankings and available market data till May 15.

Indian Hotels, REC and Shree Cement may move out

Axis Capital also listed stocks that may exit the Nifty Next 50 during the review process.

Indian Hotels Company could witness passive outflows of nearly $63 million, or around Rs 525 crore, according to the brokerage.

REC may see outflows of roughly $48 million, equivalent to nearly Rs 400 crore, while Shree Cement could face selling of around $37 million, or close to Rs 310 crore.

The report also included Zydus Lifesciences and Lodha Developers Ltd. among probable exclusions from the index.

Axis Capital estimated passive outflows of around $28 million, or nearly Rs 235 crore, for Zydus Lifesciences and close to $26 million, or around Rs 220 crore, for Lodha Developers.

“Index changes are driven by eligibility criteria including free float market capitalisation and liquidity thresholds,” the brokerage said.

Stocks removed from benchmark indices often face temporary pressure because passive funds are required to reduce exposure once the revised composition becomes effective.

No changes expected in Bank Nifty

Axis Capital said they don’t expect changes in the Bank Nifty composition during this review cycle.

The brokerage’s analysis suggested that the current constituents remain comfortably placed within the required eligibility parameters.

“No constituent changes are expected in Bank Nifty as per current eligibility trends,” Axis Capital said.

Bank Nifty remains one of the most actively tracked sectoral indices in the Indian market due to the heavy weight of financial stocks in benchmark indices and derivatives trading activity.

Review based on market capitalisation and liquidity data

Axis Capital said its projections are based on publicly available data and current index eligibility calculations.

The brokerage noted that the review observation period runs from February 1 to July 31, while the current analysis uses data available till May 15.

The National Stock Exchange takes into account factors such as free float market capitalisation and trading liquidity before finalising index changes.

Axis Capital added that the final composition may still change if there are major market movements before the review cut-off period ends.

Conclusion

Axis Capital’s latest review has placed BSE and Wipro at the centre of the upcoming Nifty reshuffle. The brokerage expects BSE to receive the largest passive inflows among all probable inclusions, while Wipro may face sizeable selling linked to its expected exit from the benchmark index.