Shriram Finance Rallies 4% Following Nifty 50 Inclusion, UPL Dips 2% After Being Dropped
The National Stock Exchange of India (NSE) has declared updates to its key indices, the Nifty 50 and Nifty Next 50, scheduled to occur on March 28, 2024. These modifications stem from the semi-annual revision process of the exchange.
The Nifty 50 index, which measures the performance of India's 50 largest and most actively traded companies, will undergo changes with UPL being removed and Shriram Finance being added. The decision to include Shriram Finance in place of UPL in the Nifty 50 was made based on having the highest six-month average free-float market capitalization within the eligible universe, marking its entry into the index effective from March 28, 2024.
Impact on Stock Prices
At the opening of the market, Shriram Finance's shares soared over 4% reaching an intraday high of Rs 2,455.10 on the NSE, showcasing the investors' positive response to the news. In contrast, UPL's shares fell 2% to an intraday low of Rs 466.80, as the market digested its exit from the index.
Over the past three months, Shriram Finance has seen an impressive ~23% rise in its share price, while UPL has faced a 17% decline amidst challenges such as increasing debt and a slowdown in the agri-input sector. UPL's performance last year further highlighted its struggles within the Nifty 50, marking it as one of the index's biggest underperformers.
Investment Flows and Market Predictions
According to insights from Nuvama Alternative and Quantitative Research, the inclusion of Shriram Finance in the Nifty 50 is expected to attract approximately $217 million in inflows. On the other hand, UPL is anticipated to witness outflows of around $114 million due to its exclusion from the index.
Broader Index Reshuffling: Impact and Opportunities
Nifty Next 50
The Nifty Next 50 index, which focuses on the next 50 largest and most liquid companies after the Nifty 50, is set to experience a more significant reshuffling. Jio Financial Services is set to enter the Nifty Next 50, alongside Adani Power, Indian Railway Finance Corporation, Power Finance Corporation, and REC. Conversely, Adani Wilmar, Muthoot Finance, PI Industries, Procter and Gamble Health and Hygiene Care will exit the Nifty Next 50.
According to projections, Jio Financial Services is expected to receive inflows of $89 million, Power Finance Corporation is set to receive $48 million, both Adani Power and REC are anticipated to have inflows of $45 million each, and Indian Railway Finance Corporation may see inflows of $23 million.
These changes will come into effect at the close of trading on 27 March 2024. The NSE`s periodic review process ensures that the indices accurately represent the Indian stock market and provide valuable insights for the investing community.
Frequently Asked Questions (FAQs)
What criteria does NSE use for including Companies in Nifty 50 and Nifty Next 50?
The National Stock Exchange of India (NSE) selects companies for the Nifty 50 and Nifty Next 50 indices based on strict criteria focusing on market capitalization and liquidity. A company's inclusion in the Nifty 50, for example, is based on its six-month average free-float market capitalization, which must be among the highest in the eligible universe. Liquidity is also a key factor, assessed through trading volumes and the frequency of trades. The NSE reviews these indices bi-annually to ensure they reflect the market's current state and dynamics accurately, making necessary adjustments.
How does Inclusion or Removal from Nifty 50 and Nifty Next 50 affect Companies long-term?
Being added to or removed from the Nifty 50 or Nifty Next 50 indices can significantly impact a company's long-term prospects. Inclusion can enhance a company's visibility to investors, potentially leading to increased investment and higher market valuation. This effect is partly due to the interest from mutual funds and institutional investors that track and invest in these indices.
Conversely, being removed from an index might decrease a company's visibility and lead to investment outflows, particularly from index-tracking funds. However, the actual impact varies, depending on the company's performance, market conditions, and investor perception of its future prospects.
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