Rule changes pave way for Paytm and other new-age stocks in Nifty Next 50

Nifty Next 50 index is a gauge for the performance of top 50 stocks other than those part of the benchmark Nifty 50 index. Stocks in both indices make up the Nifty 100 index

In a surprising move, newly-listed companies Nykaa, Paytm, Policy Bazaar have been added to the Nifty Next 50 index, a gauge for the performance of top 50 stocks other than those part of the benchmark Nifty 50 index. Stocks in both the indices make up the Nifty 100 index.

Their inclusion comes despite a sharp drop in their stock prices in recent weeks. Most analysts had not factored in the inclusion of Paytm and Nykaa, as they didn’t fulfil the earlier inclusion criteria.

NSE Indices, an arm of the National Stock Exchange (NSE) responsible for construction and maintenance of Nifty indices, on Thursday tweaked the eligibility criteria of Nifty indices to allow new listings and companies that have undergone a scheme of arrangement to be listed for one calendar month as compared to three months earlier.

NSE Indices announced six changes to the Nifty Next 50 Index. The  inclusions are FSN E-Commerce Ventures (Nykaa), Mindtree, Paytm, SRF and Zomato. Indian Oil Corp has moved from the Nifty 50 index to the Nifty Next 50 Index, while Apollo Hospitals Enterprise has moved up. The other deletions include Aurobindo Pharma, Hindustan Petroleum, Indraprastha Gas, Jindal Steel & Power and Yes Bank.

Analyst Brian Freitas, who publishes on Smartkarma, says the changes will lead to a churn of around Rs 1,600 crore as indices tracking the Nifty Next 50 gauge rebalance their portfolios. He doesn’t expect a huge impact on individual stock prices as passive funds tracking this index are relatively small.

The changes to the Nifty 50 index, however, will have a greater impact, with Apollo Hospitals expected to see inflows of Rs 1,409 crore, while Indian Oil will see selling to the tune of Rs 882 crore.

Bank of Baroda also replaces RBL Bank in the Nifty Bank index. The move will result in Rs 1,264 crore worth of buying in the state-owned bank, while RBL will see selling to the tune of Rs 445 crore. HDFC Bank (inflows of Rs 598 crore), ICICI Bank (472 crore) and Kotak Mahindra Bank (Rs 253 crore) on account of changes to their weightage, wrote Freitas in a note.

While the changes –part of semi-annual rebalancing of the index–were announced on Thursday, they would become effective from March 31.