Nifty Next 50 reshuffle brings dozen stocks into sharp focus, including AEL

For the uninitiated, the Nifty Next 50 is the second-most important index after the Nifty50 as quite a number of ETFs track these two indices

NSE Indices – the index-providing arm of the National Stock Exchange (NSE) - announced a realignment of its indices earlier this month. The insertion of Adani Enterprises (AEL) and exclusion of Shree Cement from the flagship Nifty50 Index grabbed headlines, albeit little or no attention was paid to the rebalancing of the Nifty Next 50 Index. However, analysts believe the changes announced could have significant bearing on stock prices.

For the uninitiated, the Nifty Next 50 is the second-most important index after the Nifty50 as quite a number of exchange-traded funds (ETFs) track these two indices. Both these indices together form the Nifty 100 Index.

On September 1, NSE Indices announced seven changes to the Nifty Next 50 Index, which will come into effect from September 30. However, ETFs and index funds will need to trade on September 29 to align their portfolios.

Adani Total Gas, Bharat Electronics (BEL), Hindustan Aeronautics (HAL), Indian Railway Catering and Tourism Corporation, Mphasis, Motherson Sumi Systems, and Shree Cement are stocks added to the Nifty Next 50 Index.

Meanwhile, AEL, Jubilant FoodWorks, Lupin, Mindtree, Punjab National Bank, Steel Authority of India, and Zydus Lifesciences have been removed.

“Given this index is often overlooked, there could be significant price moves in these stocks over the next couple of weeks,” says analyst Brian Freitas of Periscope Analytics, in a note on September 2, adding, “While the impact is over a day of average daily volume to trade for most stocks, the impact is significantly higher in terms of delivery volume.”

Adani Total Gas (estimated inflows of Rs 426 crore), BEL (Rs 407 crore), and HAL (Rs 205 crore) will be the most impacted in terms of passive inflows. 

Jubilant FoodWorks (estimated outflows of Rs 255 crore), Mindtree (Rs 224 crore), and Lupin (Rs 172 crore) could see maximum outflows, observes Freitas, who publishes on Smartkarma.

The rebalancing of the Nifty Next 50 Index is expected to trigger trades worth of Rs 2,500 crore. The churn is significantly lower compared to the impact of the Nifty50 rebalancing.

AEL’s inclusion in the Nifty50 Index itself is expected to result in passive inflows of over Rs 3,070 crore. Shree Cement’s excision is expected to result in outflows of over Rs 1,000 crore by ETF trackers.

Experts say all stocks could see high volatility in the run-up to September 29.

Most stocks removed from the index are currently trading close to their 52-week lows. Meanwhile, stocks added have been standout performers this year.

Market experts say in the warm-up to the recalibration, the trend of outperformance of inclusion candidates and underperformance of exclusion candidates may continue.