 "Passive funds have to sell Rs 1.5K crore ITC Hotels shares after listing")
Domestic passive mutual fund (MF) schemes will have to sell around Rs 1,500 crore worth of ITC Hotels shares once the demerged entity lists on the exchanges, according to estimates.
Passive MF schemes — especially those tracking the Nifty 50 and Sensex — will have to offload their holdings in ITC Hotels as the stock will be excluded from the indices.
“Assuming the current static price of around Rs 260 remains on the day of exclusion, the passive flow for Nifty50 will be around $110 million (current weight of 23 basis points or bps), and for Sensex, it will be around $70 million (current weight of 28 bps),” Abhilash Pagaria, head of Nuvama alternative & quantitative research, stated in a report.
According to the report, the stock has been assigned a value of around Rs 260 in Nifty 50 and Rs 270 in Sensex.
ITC Hotels is now part of both the Nifty50 and Sensex. The stock will be excluded on the third day after trading commences.
However, the exchanges can choose to delay the stock's exit if the stock keeps hitting the circuit.
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During the last such event in August 2023, Jio Financial shares hit the lower circuit for five-straight sessions post listing as passive funds rushed to sell their holdings. This led to deferment of exclusion from the indices.
The listing may take close to a month, going by the timeline of previous major demergers.
While ITC Hotels is set to move out of the domestic indices, the company may find a place in global indices.
“Based on estimates, ITC Hotels is expected to meet the criteria for inclusion in the MSCI Global Small Cap Indexes. As a result, ITC Limited will remain part of the Standard Index. However, following the listing of ITC Hotels, the hotel business will be moved to the Small Cap Index and will no longer be part of the Standard Index,” the Nuvama report said.