Nuvama expects one of these stocks to replace HDFC in Nifty 50 index next year

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Strategists at Nuvama Alternative & Quantitative Research believe that mortgage lender HDFC Limited will be replaced from the Nifty 50 index only after merger completion with HDFC Bank in Q1FY24. In the March 2023 review, they expect no changes.

Post-merger, HDFC Limited is likely to be replaced by one of these companies - Pidilite (PIDI), LTI Mindtree (LTIM), Ambuja Cement (ACEM), and Tata Power (TPWR), in the 50 stock index, it said.

According to the research note, authored by Abhilash Pagaria, “It is quite early to pinpoint a stock that holds the strongest chance to replace HDFC Ltd on its merger ex-date. We expect the merger’s completion by Q1FY24 and a few stocks currently on our radar are Pidilite (PIDI), LTI Mindtree (LTIM), Ambuja Cement (ACEM) and Tata Power (TPWR).”

It noted that Adani Power, Varun Beverages, ABB, Page Industries may enter Nifty Next 50 in March next year.

Nuvama highlighted that there are borderline chances of one of the three stocks -- Adani Wilmar or Trent and TVS Motor -- entering the next 50 index.

According to the National Stock Exchange (NSE) website, index reviews are carried out every six months to ensure that each security fulfills all the laid down criteria. Nifty50 uses researched and publicly documented rules for index revision.

Nuvema further added the merger of L&T Infotech (LTI) with Mindtree is unlikely to make it to Nifty 50 in March 2023 review, dispelling the market chatter.

“Until the merger is completed and fresh shares are credited to the shareholders, the index provider (NSE) will consider LTI as an independent entity,” it said.

Nuvama underlined that the most important criteria for a Nifty inclusion is that the stock should compulsorily be part of the derivatives segment.

For instance, the average free float market cap of Avenue Supermarts, Adani Green Energy, and Adani Transmission is significantly higher than most of the existing Nifty 50 constituents, but the stock has not been included in the index for the past few reviews as they are not a part of the F&O segment.

"If any of the above stock. gets included in derivatives by the announcement date, then it would make it to Nifty 50," it said.