Nestle India is likely to be included in the Nifty from October 2019 following changes in the eligibility criteria for inclusion of stocks in the index, brokerages have said.
Nestle shares reacted positively to the development, hitting a record high of Rs 12,510 intraday on August 21, rising 4.5 percent from previous closing. At 1230 IST, it was quoting at Rs 12,488.80, up Rs 519, or 4.34 percent, amid high volumes on the National Stock Exchange of India (NSE).
The index is reconstituted twice a year, in January and July. The replacement of stocks, if any, is implemented from the first working day of futures and options (F&O) series of April and October. If there is a change, a four-week notice is given to the market participants.
After the revised guidelines, Nestle India would qualify for inclusion in the Nifty and Zee Entertainment Enterprises could be excluded, Edelweiss said.
ICICI Direct was of the view that Nestle was most likely to replace Indiabulls Housing Finance. "The six-month average free float market capitalisation for Indiabulls Housing Finance is lower than Yes Bank and it is likely to be removed from Nifty 50," it said.
Nestle is likely to have a weightage of near 1.0 percent in the Nifty after inclusion, said ICICI Direct.
Zee Entertainment Enterprises was down 1.74 percent at Rs 344.75 and Indiabulls Housing Finance fell 2.67 percent to Rs 507.50 on the NSE.
On August 20, the Index Maintenance Sub-Committee of NSE Indices Limited reviewed the eligibility criteria for inclusion of stocks.
The exchange said only stocks listed at NSE were included in the Nifty. Stocks permitted for trading at NSE while not listed at NSE or stocks not listed and also not permitted to trade at NSE were not considered for inclusion, it added.
As per the revised criteria, all equity shares traded—listed & traded and not listed but permitted to trade—at NSE were eligible for inclusion in the Nifty, the exchange said.
Convertible stock, bonds, warrants, rights, preferred stock that provide a guaranteed fixed return and stocks under BZ series were not eligible for inclusion in the Nifty, it added.
The revision will come into effect from the forthcoming review of equity indices.
The eligibility criteria for inclusion of stock in the Nifty:
Liquidity: The security should have traded at an average impact cost of 0.50 percent or less during the past six months for 90 percent of the observations for portfolio of Rs 10 crore.
Index criteria: Constituents of the Nifty100 shall form universe for Nifty50.
Float adjusted market cap: Companies will be included if free-float market capitalisation is 1.5x the free-float market capitalisation of the smallest constituent in respective index.
F&O criteria: Stock must be available for trading in NSE's futures & options segment.
Domicile: The company must be domiciled in India and trade on the NSE.
Trading frequency: The company’s trading frequency should be 100 percent in the past six months.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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