Britannia Industries could be the next entrant to the Nifty50 index in the upcoming index review in February considering the company's free float market-cap has increased, said analysts.
On the other hand, either Hindustan Petroleum Corporation (HPCL) or Bharti Infratel are likely to be excluded from Nifty. The probability of HPCL making its way out of the index is slightly higher, ICICIdirect research said in a note.
Looking at the trend of the last few years, the exchange may come out with its list of inclusions and exclusions in the second half of February 2019, which will be effective from the April series of 2019.
The index is reconstituted semi-annually considering six months’ data ending January and July. The replacement of stocks in Nifty 50 (if any) is generally implemented from the first working day of F&O series of April and October.
ICICIdirect research, in its report, added that in case of any replacement in the index, a four weeks’ prior notice is given to the market participants. The announcement of any inclusion or exclusion for the same from the NSE is expected to be made sometime in February.
Considering the average free-float market capitalisation since August 1, 2018, Britannia is most likely to replace Hindustan Petroleum Corporation from the Nifty 50 stocks, said the note.
Other stock that is coming close to being excluded from the Nifty is Bharti Infratel. HPCL was inducted into Nifty just more than a year back in September 2017. Thus, if HPCL is not excluded, Bharti Infratel may pave the way for inclusion of Britannia in Nifty.
Why stocks get replaced from an index?
1. In case of compulsory changes like corporate actions, delisting, etc. In such a scenario, the stock having the largest free float market capitalisation and satisfying other requirements related to liquidity, turnover and free float will be considered for inclusion
2. When a better candidate is available in the replacement pool, which can replace the index stock i.e. stock to be included in the Nifty should have at least 1.5 times the free float market capitalisation of the stock that is to be excluded
However, with respect to point 2, the following should also be considered:
a) A maximum of 10% of the index size (number of stocks in the index) may be changed in a calendar year. Hence in calendar year 2019, a maximum of five stocks can be replaced from the pool of 50.
b) The coming rebalancing is expected to be effective from April series of 2019. An announcement regarding the same is likely to be made in the second half of February.
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