Wipro could dislodge Bajaj Auto from Sensex, says SmartKarma analyst

Wipro has highest average free float market cap of Rs 80,213 cr among non-Sensex components for 55% of the review period; Bajaj Auto has free float market cap of Rs 50,929 cr and is ranked 38th

Technology firm Wipro has a “high probability” of getting included in the benchmark Sensex, while two-wheeler major Bajaj Auto is the “most likely” deletion candidate, according to an analysis done by Brian Freitas, an analyst at independent research provider Smartkarma.

The changes to the index will be announced mid-November, and will become effective from December 17. The December review uses the 6-month average market capitalisation and trading turnover data between May 1 and October 31 to determine changes.

Wipro currently has the highest average free float market cap of Rs 80,213 crore among non-Sensex components for 55 per cent of the review period, followed by JSW Steel (Rs 71,000 crore) and Tata Motors (Rs 62,280 crore). Bajaj Auto with average free float market cap of Rs 50,929 crore is ranked 38th when non-index components are taken into account.

Freitas believes investors can look to buy Wipro given the index inclusion trigger.

“Wipro trades cheaper than its peers and could be a good buy on a relative basis, especially with the upcoming passive flows and active positioning flows prior to that,” he says.

Exchange traded funds with assets of nearly $10 billion (Rs 73,000 crore) track the Sensex. Besides, a lot of active mutual funds are benchmarked to the Sensex, which often adjust their holdings ahead of a rebalance.

Wipro currently trades at one-year forward price-to-earnings (P/E) multiple of 24.5 times. In comparison, Tata Consultancy Services (TCS) trades at 28.1 times and Infosys at 27.7 times. On an enterprise value-to-sales (EV/sales) basis, Wipro is at 4 times, TCS at 6.3 times and Infosys at 5.83 times.

Bajaj Auto too trades cheaper compared to its peers and can be a good buying opportunity if its price drops from active positioning and then passive selling, says Freitas.

Currently, Bajaj Auto trades at 17.6 times one-year forward P/E. Eicher Motors trades at 25 times and TVS Motor at 21.5 times. On EV/sales basis, Bajaj Auto is at 2.81 times, Eicher Motors 5.64 times and TVS Motor 1.84 times. Bajaj Auto, however, is expensive when compared to Hero Motocorp---P/E of 14 times and EV/sales of 1.33 times.