Key changes likely to be made in Nifty Next-50 index

The NSE Next 50 index is an interesting residual index. It is called a residual index as it is formed by taking the NSE 100 index and removing the Nifty 50 stocks from that list. Essentially, the NSE Next 50 stocks are also large cap stocks but they are not in the same league as the stocks in the Nifty. In the February revenue, we saw the digital players like Paytm, Nykaa and Zomato getting added to the Nifty Next 50 index.

The changes to the Next 50 index happen every 6 months. The last changes were done in February so the next round should be implemented around August this year.

According to a recent report put out by a leading domestic broker, Adani Enterprises could enter the Nifty 50 large cap index in the next semi-annual index review by the NSE. That is also better known as the September Review while the first review is the March review each year.

It is expected that Adani Enterprises could come into the Nifty in place of Shree Cements that has been an underperformer over the last few months due to pressure on the power and fuel cost front.

The rebalancing of NSE indices will be announced in August and come into effect from September end. The previous round announcement of changes were made in February and became effective from March 2022.

Normally, the inclusion and exclusion in a liquid index like the Nifty is significant as it leads to substantial flow readjustment by the passive index funds and the index ETFs that are benchmarked to the Nifty.
 

For instance, the inclusion of Adani Enterprises in the benchmark Nifty 50 index is likely to induce inflows of $183 million into the stock. At the same time, the exit of Shree Cements could result in outflows to the tune of $94 million by passive funds.

Another big change or (can we say changes) are likely to happen in the NSE Next 50 index. One inclusion that is very likely is the stock of LIC. Now the recent listed LIC may not have a trading history but in terms of market value, it already ranks among the top 10 stocks on the NSE, so it cannot be ignored.

Other stocks that could come into the Nifty Next 50 include Tata Power, Adani Wilmer and IRCTC Ltd. Shree Cements could shift from Nifty to Next 50.

There are other potential entrants into the Nifty Next 50. These include Mphasis and Motherson Sumi Systems although the report is not too clear on these names. However, there are also some likely exits from the Nifty Next 50.

These likely exits include Lupin, Jubilant Foodworks, Zydus Lifesciences, PNB, and SAIL. Adani Enterprises could also exit if it gets added to the Nifty 50. 

There are also some changes expected in the sectoral indices. For example, Persistent Systems is expected to enter the IT index, bringing $20 million of inflows. IT is likely to replace LTTS. Other major indices are likely to remain the same and hence any outflows or inflows in other sectoral indices don’t look likely.