Tata Sons-promoted Trent and state-owned Bharat Electronics Limited (BEL) could replace LTI Mindtree and Divi’s Laboratories in the Nifty 50 in the bellwether index’s upcoming reconstitution in end-September, early analysis by brokerage Nuvama indicates.
The inclusion of Trent and BEL is projected to bring in an inflow of $429 million and $361 million, respectively, to the counters. Conversely, the exclusion of LTIMindtree and Divi’s Labs could see outflows of $186 million and $213 million, respectively, said Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research.
The reaction of investors will be to front load Trent and BEL and to sell Divi’s and LTIMindtree over the next few weeks, believes Pagaria.
“This rejig will once again demonstrate that only top performers earn a seat in the Nifty 50,” he added.
Pagaria’s analysis highlights LTI Mindtree as the most likely candidate for exclusion due to Trent’s superior performance against the inclusion criteria. Divi’s Laboratories could potentially retain its spot if it outperforms Bharat Electronics by a substantial margin (25%) and sustains that lead until the end of July. However, this scenario is considered unlikely.
LTI Mindtree and Divi’s Labs have gained only 0.5% and 19.6%, respectively, over the past year, while Trent and BEL have soared by an impressive 208% and 129%, respectively. This significant outperformance strengthens Nuvama’s prediction of their inclusion.
‘Only stock closer to Bharat Electronics is Hindustan Aeronautics’
“Precisely, Trent is the closest inclusion contender, followed by Bharat Electronics. As of now, the only stock which is closer to Bharat Electronics is Hindustan Aeronautics. If Hindustan Aeronautics outperforms Bharat Electronics by more than 20% soon and stays there till the end of July, then it will have a higher chance,” Nuvama’s report said.
The deadline for determining the final cut-off based on average market capitalization is the end of July. The official announcement regarding the index changes will be made in the latter half of August, with the rejig implemented on 30 September.
Also Read: Stock in focus: Rajesh Palviya of Axis Securities recommends Bharat Electronics, Ashok Leyland and APL Apollo
An important caveat exists. Over 150 stocks qualify for inclusion based on quantitative factors, but haven’t received approval for derivative trading (F&O) from market regulator Sebi. The regulator has not greenlit new F&O inclusions.
“If Sebi approves F&O inclusion for Zomato and Jio Financial Services before announcement by NSE Indices in August, they will have a higher chance to make it to Nifty over the above-highlighted names. But since the timing is uncertain, I’ll go with the scenario of TRENT and BHE making the cut,” Nuvama report said.
According to Kruti Shah, analyst, Equirus, Trent’s potential inclusion comes on the back of its Zudio stores, which is a value fashion and lifestyle offering. BEL has been doing well on account of its being a superior defence play, she added.
Nifty indices see two semi-annual reconstitutions effective the last working day of March and September. To be part of the Nifty 50, the stock should be listed on the derivatives segment of the exchange, have a listing history of six months and traded at an average impact cost of 0.5% or less during 90% of the observations for a basket size of ₹100 million. Impact cost refers to the cost of executing an order on the exchange.
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Published: 18 May 2024, 06:00 AM IST
