NSE’s Index Maintenance arm, IISL, has changed the Nifty 50 Index – the top 50 stocks by free float market cap which form the benchmark index with the following exclusions. (From April 1, 2016)
Removed:
- Cairn
- Vedanta
- Punjab National Bank
Added:
- Auro Pharma
- Bharti Infratel
- Eicher Motors
- Tata Motors DVR
What? Removed Three and Added Four?
Precisely.
This is annoying. There are supposed to be 50 stocks in an index named, for goodness’ sake, Nifty 50. The index name was specifically changed from “CNX Nifty” to “Nifty 50” in November 2015, just three months ago! The significance of the number 50 was: there are 50 stocks in this index.
And now you have 51?
This is stupidity because now a lot of algorithms have to be changed, which assumed, perhaps naively, that the Nifty 50 would have only 50 stocks.
But Why The DVR?
And the 51st stock is: The Tata Motors DVR.
This is a differential voting rights share of Tata Motors. Which is already in the Nifty!
Why would you have BOTH the Tata Motors share and it’s DVR in the same index? This sounds like utter nonsense – you could just consider the DVR as a part of the marketcap of the Tata Motors share and still retain 50 stocks.
Other changes: Removing Cairn and Vedanta makes sense as their free float market cap was under Rs. 9000 cr. after their steep fall – replaced by Eicher and Infratel (who have more than 20,000 cr. in free float market cap). This also shifts the index more towards an industrial outlook rather than the commodity plays that Cairn and Vedanta are.
The new changes – and note that the numbers change for the major indexes:
What Happens?
- The Nifty EPS should increase, because Auro Pharma, Eicher and Bharti Infratel have positive earnings (and Cairn and Vedanta are negative)
- There isn’t so much interest in Nifty ETFs that stocks should be impacted big time – a large ETF presence would mean that the outgoing stocks would be sold and the incoming would be bought. But there’s not that much money riding on the Nifty 50 (51?) yet. The MSCI Index has much more money following it – around $3 to $5bn – which would see a larger impact in general, but we aren’t tracking those changes just yet.
- Index based strategies that used a 50 base number for calculations (or 100 or 500 for the broader indexes) will have to change their algorithms to use percentages instead. This is an impact to Capital Mind as we have such strategies like the MA20. (Link for premium members)
[blurb-capmind-prem]
Any reason which they have given for including the 51st stock?
Hi, would the current Nifty Midcap 100 be the new Nifty Full Midcap 100 or would it be someting else?
I thnk it is the full midcap 100, you’re right
It makes perfect sense to have 51 stocks. It’s 50 companies. That’s what the 50 stands for.
You need to think like an owner not as a trader.
Still a mockery, people need to think of traders because they are as important as owners.
Some might say that this is very much in line with the current ruling dispensation. After all, 51, 101, 201, 1001, etc are considered auspicious. Waiting for Nifty 500 to become Nifty 501 now. Maybe if HUL spins off BOP brands including 501, they could include that as the 501st stock.
It’s already 501 🙂 Because the Nifty 500 includes the Nifty 50 now 🙂
Annoying yes but a bit harsh to single out Nifty! S&P500 has 505 stocks (also because of 2 classes of shares being included for Google etc.)
I see – didn’t know that! Thanks for that. The tata motors DVR is exactly like that – a different class of share of Tata motors.
Indian investors are always looking for BONUS issue, NSE obliged!
Hi Deepak,
Could you please tell, historically, how has been the performance for the stocks which have been recently included in Nifty basket, say for the 1st week. Has there been a considerable uptick. If you could provide some numbers, it would be great. Thanks in advance!