India Strategy : Imminent HDFC merger overshadows upcoming NIFTY50 index change wherein Adani Enterp. is likely to replace Shree Cement By ICICI Securities
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Upcoming semi-annual changes to the NIFTY50 index wherein Adani Enterprises is likely to replace Shree Cement is dwarfed by the impact of the impending HDFC merger. However, the merger-related changes to the index will depend on the date of shareholders’ approval, hence no definite timelines can be indicated at this point in time. Past example of a corporate restructuring for Grasim and related index change indicates a time lag of less than one month from the date of shareholders’ approval to announcement of exit from the index . The HDFC merger will likely result in an unprecedented ~14% of the NIFTY50 weight (HDFC Ltd plus HDFC Bank) getting replaced by two new incoming stocks with a combined weight of ~1% and the remaining 13% weight getting distributed amongst the existing 48 stocks in the index at that time. On the basis of current NIFTY50 ETF AUM of Rs 1.7trn, the HDFC merger-related index changes can potentially result in buying and selling of stocks worth above Rs480bn based on Jul’22 end-prices. (Sensex ETFs have another ~ Rs 880 bn AUM and could see a similar action as in the case of NIFTY50 due to the imminent merger of HDFC).
The regular, semi-annual change will likely see Adani Enterprises entering and Shree Cement exiting the NIFTY50 index: The upcoming semi-annual changes to the NIFTY50 index will be announced in Aug’22 and the changes shall come into effect from 30 th Sep’22. The changes will take into account the average free float (FF) market capitalisation for the period Feb’22-Jul’22. While three stocks have qualified on free float market cap criterial, Adani Enterprises edges out in terms of being in the F&O list and is the most likely candidate to replace Shree Cement.
Rs24bn worth buying and selling expected from ETFs: This change will result in buying worth Rs17.6bn (5x ADTO) for Adani Enterprises and selling worth Rs6.3bn (6x ADTO) for Shree Cement from NIFTY50 ETF funds.
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