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Strategy: 'Out of turn' change in NIFTY50 due to Vedanta delisting - ICICI Securities

Posted On: 2020-07-02 21:54:47

- HDFC Life Insurance will replace Vedanta in the NIFTY50 effective 31 Jul'20. 'Out of turn' change in NIFTY50 as Vedanta, on 25th Jun'20, got shareholder approval for de-listing. As explained in the index methodology and going by past evidence (Grasim in Apr'17), such a corporate action triggers an 'out of turn' announcement of change in the NIFTY50.

- In the regular semi-annual change to be announced in end-Aug'20, we expect SBI Life and Divi's Lab to replace Zee Entertainment and Bharti Infratel.

- Above-mentioned changes improve the earnings growth profile of NIFTY50, and increases the weight of non-lending financial services stocks in the index. Regular semi-annual changes will take into account data from Feb to Jul'20 while the announcement will be in Aug and effective end Sep'20. Jul'20 data could impact the rankings leading to changes in entry/exit candidates.

- Expected weight and buying / selling: Currently, Nifty50 ETF and index AUMs stand at Rs914bn. Vedanta currently has an estimated weight of 44bps in the index, while HDFC Life is expected to enter the index with a weight of 90bps, entailing ETFs and index funds buying worth Rs8.2bn. Zee Entertainment and Bharti Infratel currently have an estimated weight of 36 and 42bps respectively, and will be replaced by SBI Life (70bps) and Divi's Lab (64bps). The difference between incoming and outgoing stock weights is fulfilled by marginal selling in the remaining index constituents.

- Alternate scenario - Avenue Supermarts gets included in F&O segment: Although Avenue Supermarts has the second rank in terms of average free float market cap of Rs336bn (since Feb'20) in the NIFTY Next 50, it does not qualify currently as it is part of the T-segment and is excluded from the F&O list. However, if the exchanges move it out of the T-segment, then it could be eligible to enter the F&O segment and therefore into the NIFTY50 index in the Sep'20 semi-annual changes.

Shares of Vedanta Limited was last trading in BSE at Rs.106.4 as compared to the previous close of Rs. 107.7. The total number of shares traded during the day was 1066119 in over 3390 trades.

The stock hit an intraday high of Rs. 108.65 and intraday low of 106.05. The net turnover during the day was Rs. 113679005.

Source: Equity Bulls

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