Nifty Rejig: Shriram Finance in, UPL out
Upstox
2 min read • Updated: March 27, 2024, 9:01 PM
Summary
A Nifty Index rejig is an attempt by the exchange to make the index a more accurate representation of the market. Inclusion of a company, Shriram Finance in this instance, translates to more inflows and positive sentiment for the company. An exclusion, like UPL in this case, will lead to significant outflows.
The semi-annual rebalancing of Nifty indices is expected to come into effect tomorrow, March 28, 2024. According to NSE's notice, Shriram Finance will be added to the NIFTY50 index, while UPL will be removed from the same.
However, the adjustments to the index took place today. The following shuffle would also require exchange-traded funds (ETF) and mutual funds that are tracking these indices to reevaluate their portfolios and sync them with the latest compositions.
Why are indices reshuffled?
Indices represent the overall market sentiment. Indices are used to track the performance of major companies across sectors and provide a fair representation of the market; therefore, the stock exchange restructures such indices twice a year to add or remove companies. The decision to include a company in the index is based on multiple criteria, such as market capitalization, liquidity, and financial performance, along with certain index-specific conditions.
What does such a shuffle mean for the company?
If a company is included in the index, it will experience more demand, as ETFs and mutual funds tracking those indexes will include the company in their portfolios as well. Being included in an index is generally considered to be a positive thing for a company. In the current case, NSE has decided to include Shriram Finance in the current rejig. This means Shriram Finance is expected to receive more inflows.
At the same time, if an exchange decides to exclude a company from an index for any reason, including low trading volumes or financial performance, the company would experience significant outflows from ETFs and mutual funds. UPL has been removed from the NIFTY50 Index in the current reorganisation of the index. The move comes after the stock was removed from the NIFTY100 Index.
Market experts are expecting inflows into companies like HDFC Bank, Jio Financial Services, NTPC, and Adani Power. On the flip side, SBI, UPL, ICICI Bank, Oil & Natural Gas Corp, Coal India, Reliance Industries, and Kotak Mahindra Bank will witness significant outflows.