Adani Enterprises joins Adani Ports in Nifty50; expect ETF buying worth Rs 1,750 crore

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Adani Enterprises, the flagship entity of Adani Group and an incubator focusing on establishing diverse new businesses, is all set to be the newest entrant in the Nifty 50 index from September 30 replacing Shree Cements.

This is the second Adani Group entity that will be a part of Nifty after Adani Ports & SEZ even as seven companies from the group feature among the 50 biggest companies in India.

Even among Adani Group companies, Adani Enterprises is the less flashy sibling that does not draw as much attention. However, the returns it has delivered is no less than other siblings. Following its superb run in the last three years, when it delivered around 2,400 percent returns, Adani Enterprises is now the 11th biggest listed company in India with a market cap of Rs 4.1 lakh crore. In the same period, Nifty 50 has delivered comparatively meagre 46 percent returns.

According to brokerage house ICICI Securities, the entry of Adani Enterprises into Nifty will result in buying worth Rs 1,760 crore for the stock just from fund managers of exchange traded funds (ETF) that track Nifty.

Besides, such entries also lead to buying by other market participants as they expect the stock to go up. We have already seen some anticipatory buying in recent weeks and more is likely to come. The stock is up 7 percent in the last one month and 101 percent year to date.

After the rejig, price-to-earnings (PE) of the Nifty50 index based on FY22 earnings will increase by 0.9 percent to 24.3 times. This is due to the expensive valuation of 436 times its earnings that Adani Enterprises commands compared to 38 times that Shree Cement demands.

On the other hand, following the rejig FY22 returns on equity (RoE) of the Nifty50 index will dip marginally by 3 basis points to 14.69 percent.

Despite Adani Enterprises' unreasonable valuations, investors and analysts have not shown any reluctance in praising its business. Ventura Securities in a recent report terms the company as “the goose that lays golden eggs”.

Gautam Adani, the chairman and founder of Adani Group, in a recent speech said the Group plans to invest $100 billion over the next decade, primarily in the green energy space. Much of it will come through Adani Enterprises via its subsidiary Adani New Industries Limited which will be handling its venture into renewable energy, green hydrogen and downstream products like ammonia, urea and methanol.

Apart from that, Adani Enterprises is involved in managing airports, data centres, building roads and defence equipment. All these businesses are on the verge of gaining traction and should be value accretive in the short to medium term, say analysts.

Adani Enterprises will also be included in the Nifty 50 Shariah index. Besides, Adani Total Gas is being included in the Nifty100 Alpha 30 index and Adani Wilmar in Nifty500 Shariah index.

Farewell, Shree Cement

From its entry into the coveted club of 50 stocks on March 27, 2020 until its exit, Shree Cement delivered a mere 21 percent returns. Though it should be noted that during this period the Indian economy was in turmoil due to the pandemic, negatively impacting many other stocks.

Following its exit, UltraTech Cement will be the sole cement company in the Nifty.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.