NSE reshuffles stocks in indices; how will it impact your MF investments

Yes Bank out, Shree Cement in Nifty 50, 5 stocks changed in NIFTY Next 50, 20 stock rejig in Nifty 500; All changes effective from March 27, 2020

Kumar Shankar Roy Feb 19, 2020

small and mid cap stocksThe Index Maintenance Sub-Committee (IMSC) of NSE Indices has decided to make key changes in various indices, which affect over 400 stock positions. Such a reshuffle will impact your financial investments that have exposure to such stocks. When stock(s) of an index are changed, then some go out and some enter. Entries and exclusions are usually followed by a change in market perception of the specific stock(s).

Within passive products like index funds and exchange traded funds, changes in the constituents of indices have a greater impact compared to active products. There are over 50 passive investment products just in the mutual fund space, while there would be some in the insurance ULIP side as well. Read on to know more.

Index changes and area of impact

Index tracking investment products replicate an index. When an index has changed, those products have to replicate the same. This will require buying and selling stocks in their entirety.

Nifty 50

In Nifty 50, Yes Bank is being replaced by Shree Cement. This will also be applicable to Nifty Equal Weight Index.

Impact – This will be important for mutual fund ETFs like SBI ETF Nifty, UTI Nifty ETF, Nippon India ETF Nifty BeES, ICICI Prudential Nifty ETF, HDFC Index Nifty 50, Kotak Nifty ETF, amongst others. Apart from ULIP index funds tracking Nifty 50, many actively managed funds also look at Nifty 50 changes.

Nifty Next 50

In Nifty Next 50, five stocks are being replaced. Ashok Leyland, Indiabulls Housing Finance, L&T Finance Holdings, Shree Cement and Vodafone Idea are being replaced with Adani Transmission, IDBI Bank, Info Edge (India), Larsen & Toubro Infotech and Torrent Pharmaceuticals.

Impact – There are 9 Nifty Next 50 passive products in mutual fund arena. These include ICICI Pru Nifty Next 50 Index Fund, UTI Nifty Next 50 Index Fund, SBI ETF Nifty Next 50, UTI Nifty Next 50 ETF and ABSL Nifty Next 50 ETF.

Nifty 500

In Nifty 500, there is a 20-stock reshuffle. Stocks that will come in are Bharat Rasayan, Century Textile & Industries, Future Supply Chain Solutions, Garden Reach Shipbuilders & Engineers, GMM Pfaudler, Gujarat Fluorochemicals, Hathway Cable & Datacom, IIFL Wealth Management, Indian Railway Catering And Tourism Corp., Ingersoll Rand (India), JTEKT India, Mahindra Lifespace Developers, Navneet Education, Sharda Cropchem, Shipping Corporation of India, Sterling And Wilson Solar, Tata Communications, Tata Steel Long Products, Transport Corporation of India and Vesuvius India.

Stocks that will go out are Bliss GVS Pharma, Dewan Housing Finance Corporation, IFCI, Indiabulls Integrated Services, ITD Cementation India, Jain Irrigation Systems, Kennametal India, Kirloskar Oil Eng, Lakshmi Vilas Bank, Magma Fincorp, National Fertilizers, Parag Milk Foods, PC Jeweller, Reliance Capital, Reliance Infrastructure, Reliance Power, Shilpa Medicare, Sundaram Clayton, Tasty Bite Eatables and Va Tech Wabag.

Impact – There is only one passive product for Nifty 500 in the form of Motilal Oswal Nifty 500 Fund.

Nifty 100

In Nifty 100, there are five stock changes as Ashok Leyland, Indiabulls Housing Finance, L&T Finance Holdings, Vodafone Idea and Yes Bank are replaced by Adani Transmission, IDBI Bank, Info Edge (India), Larsen & Toubro Infotech and Torrent Pharmaceuticals. The above replacements will also be applicable to Nifty100 Equal Weight Index. Do note that the changes in Nifty 100 are exactly the same as Nifty Next 50.

Impact – Nifty100 index is key for seven passive investment mutual funds including Axis Nifty 100 Index Fund, LIC MF ETF Nifty 100, Edelweiss ETF Nifty 100, Principal Nifty 100 Equal Weight, ICICI Pru Nifty 100 ETF and Nippon India ETF Nifty 100.

Nifty Midcap 150 index

In Nifty Midcap 150 index, there are 15 stock changes. Scrips that go out are Adani Transmission, Blue Dart Express, Eris Lifesciences, Future Consumer, Graphite India, H.E.G., IDBI Bank, Info Edge (India), KRBL, Larsen & Toubro Infotech, Mahindra CIE Automotive, NBCC (India), Sterlite Technologies, Torrent Pharmaceuticals, and Varroc Engineering. These will be replaced by Adani Green Energy, Akzo Nobel India, Ashok Leyland, CreditAccess Grameen, IIFL Wealth Management, Indiabulls Housing Finance, Indian Railway Catering And Tourism Corp., J.K. Cement, L&T Finance Holdings, Minda Industries, NIIT Technologies, Tata Communications, Vodafone Idea, Yes Bank and Zydus Wellness.

Impact – There are just two passive mutual funds products for whom Nifty Midcap 150 is important. They are Nippon India ETF Nifty Midcap 150 and Motilal Oswal Nifty Midcap 150.

There are also various changes in indices like Nifty Smallcap 250 where there is a 27-stock reshuffle, Nifty MidSmallcap 400 has 25 changes, Nifty Smallcap 100 has 15 stock tweaks, Nifty Midcap 100, Nifty Smallcap 50, Nifty LargeMidcap 250 have 10 changes each, Nifty 200 has 6 changes, Nifty Midcap 50 witnesses 4 changes etc.

Sectoral indices like Nifty Consumer Durables, Nifty Financial Services, Nifty FMCG, Nifty Commodities, Nifty India Consumption, and Nifty MNC have one stock change each, while there are two changes each in Nifty Pharma, Nifty IT.

Eligibility criteria tweaked

One of the major changes announced by NSE related to the eligibility criteria for Nifty indices. As per the existing criteria, companies required to be ranked within top 800 based on both average daily turnover and average daily full market capitalisation based on previous six months period data. As per revised norms, eligible companies should form part of Nifty 500 at the time of review. This virtually shortens the eligibility criteria from 800 earlier to 500 now.

In case the number of eligible stocks representing a particular sector within Nifty 500 falls below 10, then deficit number of stocks shall be selected from the universe of stocks ranked within top 800 based on both average daily turnover and average daily full market capitalisation based on previous six months period data used for index rebalancing of Nifty 500.

The eligibility criteria change is for 17 indices including Nifty Auto, Nifty Bank, Nifty Financial Services, Nifty FMCG, Nifty IT, Nifty Media etc.

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.

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