The Nifty50 reshuffle has once again brought significant changes to the composition of India’s most prominent stock index. Tata Group’s lifestyle company, Trent (TRENT), and state-run Bharat Electronics (BEL) have been newly added to the Nifty50 index, replacing LTI Mindtree (LTIM) and Divi’s Laboratories. These changes were made by the Index Maintenance Sub-Committee (Equity) of NSE Indices and will take effect from September 30, 2024, following the close of trading on September 27, 2024. This update, a result of a thorough review based on market capitalization and liquidity, marks a significant shift in the stock market landscape.
Impact of Nifty50 Reshuffle on Trent and Bharat Electronics
The inclusion of Trent and Bharat Electronics in the Nifty50 index is a major milestone for both companies. Trent, a key player in the Tata Group’s portfolio, has seen its shares rise by 3.1%, reaching a record high of ₹6,999. This surge is partly driven by the anticipation surrounding its inclusion in the Nifty50 reshuffle. Investors are optimistic about the company’s future, especially after Trent’s chairman, Noel Tata, commented on the potential for the company to grow tenfold from its current level. Trent’s stock has already surged 2.4 times this year, underpinned by its strong financial performance.
Bharat Electronics, a state-run enterprise, is also set to benefit from its inclusion in the Nifty50 reshuffle. As a significant player in India’s defense and electronics sector, BEL’s addition to the index is expected to attract substantial passive investment. According to predictions from Nuvama Alternative & Quantitative, Trent’s inclusion in the Nifty could lead to passive buying amounting to approximately ₹4,180 crore. Similarly, BEL’s entry into the Nifty50 index is expected to bring in around ₹3,710 crore in passive inflows. These inflows are driven by the fact that the Nifty50 index is widely tracked by passive funds with assets under management (AUM) totalling nearly ₹4 trillion.
On the other hand, the exit of LTI Mindtree and Divi’s Laboratories from the Nifty50 index could result in significant outflows. Nuvama’s analysis suggests that Divi’s Laboratories could see outflows of ₹2,200 crore, while LTI Mindtree may experience outflows of ₹1,750 crore. These companies, which have been part of the Nifty50 index, may face challenges as they adjust to life outside the index, where they may receive less attention from passive investors.
Broader Changes in the Nifty Indices
The Nifty50 reshuffle is not the only change in the NSE indices. In the Nifty Next 50 index, several companies have been added and removed as part of the rebalancing exercise. The new additions to the Nifty Next 50 include Bharat Heavy Electricals (BHEL), Divi’s Laboratories, JSW Energy, LTIMindtree, Macrotech Developers, NHPC, and Union Bank of India. Meanwhile, companies such as Berger Paints India, Bharat Electronics, Colgate Palmolive (India), Marico, SBI Cards and Payment Services, SRF, and Trent have been excluded from the Nifty Next 50.
These changes in the Nifty Next 50 index reflect the ongoing adjustments made by the NSE to ensure that the indices accurately represent the market’s most liquid and valuable companies. The Nifty50 reshuffle, in particular, is a significant event for the stock market as it impacts the investment strategies of both active and passive investors.
Trent’s addition to the Nifty50 index brings the total number of Tata group stocks in the 50-share index to six. These include Tata Consultancy Services (TCS), Tata Motors, Titan, Tata Steel, and Tata Consumer. This concentration of Tata Group companies in the Nifty50 index underscores the conglomerate’s dominant position in the Indian stock market. Similarly, BEL’s inclusion increases the count of Public Sector Undertakings (PSUs) in the index to seven, alongside other major PSUs such as Coal India, BPCL, SBI, Power Grid, ONGC, and NTPC.
Inclusion in prominent indices like Nifty, Sensex, and the MSCI Emerging Market Index is often seen as a short-term boon for stocks. It typically triggers passive inflows as funds tracking these indices adjust their portfolios to reflect the changes. However, experts caution that the benefits of such inclusion often diminish over time. The reason is that indices tend to add stocks that have already experienced significant growth, leaving limited room for further upside. This trend suggests that while the Nifty50 reshuffle may provide a short-term boost to Trent and BEL, the long-term impact on their stock prices will depend on their continued financial performance and market conditions.
In the previous rebalancing announced in February, Shriram Finance replaced UPL in the Nifty50 index, with the changes taking effect from March 28. Since then, Shriram Finance’s shares have gained 23%, while UPL’s shares have increased by 27%. This performance illustrates the complex dynamics at play when companies enter or exit the Nifty50 index and how market participants react to these changes.
The Nifty50 reshuffle, with the inclusion of Trent and Bharat Electronics, marks a significant development in India’s stock market. While it offers short-term opportunities for these companies, the long-term effects will depend on how they capitalize on this momentum and continue to deliver strong financial results. Investors and market observers will be closely watching these companies as they navigate the challenges and opportunities that come with being part of the prestigious Nifty50 index.
You might also be interested in: Zomato, Trent, and Jio Financial: The New Titans Poised to Join Nifty50
