The National Stock Exchange could be excluded from the Nifty index in the coming weeks, as the HDFC and merger could be completed a few months earlier than expected, according to analysts.
The housing finance company, which weighs 5.5% in the Nifty, could see an outflow of about $1.3 billion to $1.5 billion from the passive funds once it is excluded from the benchmark, they said.
and are among the top candidates to replace HDFC, analysts said.
“Since HDFC is part of all Nifty indices, the stock could see big sales come from passive trackers of the Nifty 50 Index,” Abhilash Pagaria, head of brokerage Nuvama Alternative & Quantitative Research, said in a client note. “The current share weight in the Index is 5.5% and in terms of outflows, this equates to approximately $1.5 billion.”
On October 14, the National Company Law Tribunal (NCLT) gave HDFC and HDFC Bank the green light to hold shareholder meetings to seek approval for the proposed merger. HDFC has convened a shareholders’ meeting on November 25. The companies have obtained the most approvals in about five months. Approvals have already been granted by the exchanges, the Reserve and the Competition Commission of India. If shareholders approve the merger, HDFC will be excluded from the Nifty 50 index, analysts said. According to the brokerage estimate, there could be a $1.25 billion outflow from HDFC once the stock is excluded from the Nifty 50.
“In the past, changes to the index were announced and finalized in less than a month from the date of shareholder approval,” said a note from Emkay Global. “The Nifty Indices maintenance subcommittee will implement the changes on a monthly basis with effect from the last trading day of the month. Therefore, HDFC may be excluded at the end of December 2022 or January 2023.”
Since the indices’ weights are calculated based on free-float market cap, the exclusion of HDFC will redistribute most of the weights in the top 10 handy heavyweights.
Analysts said that one of the four stocks Pidilite, Ambuja,
or SRF – could replace HDFC on the Nifty.
Pidilite Industries of Ambuja Cement would weigh about 0.45-0.50% on the Nifty, if included, which would entail an inflow of $110-140 million.