NSE rejig: Chances high that JSW Steel may enter Nifty, replace Lupin

BHUBANESWAR:In the upcoming index rebalancing, JSW Steel has emerged as a major contender to enter the benchmark Nifty index, dislodging homegrown drug major Lupin, said analysts.Based on the trend of the last few years, the exchange may come out with its list of inclusions and exclusions in the second half of August and these stocks may be included in the Nifty from the October series, said ICICI Direct in a note.

The retail brokerage on Tuesday came up with a revised report based on NSE criteria of six-month average free float market capitalisation instead of their performance in recent period. The revised report states that JSW Steel is most likely to make an entry on the basis of six-month average pricing and Lupin continues to remain an exit candidate. It has, however, dismissed its earlier evaluation that had said HPCL would be replaced by two of the following three stocks — Britannia Industries, JSW Steel and Godrej Consumer.

“We observed that the six-month average free float market capitalisation of Britannia Industries is Rs 31,774 crore, which is lesser than JSW Steel at Rs 32,318 crore,” said Amit Gupta, head of derivatives at ICICI Direct. This indicates that JSW Steel qualifies in the current review to be part of the benchmark index.

According to the guidelines, a stock may be replaced from an index for the following reasons: (a) In case of compulsory changes like corporate actions and delisting, the stock having largest free float market capitalisation and satisfying other requirements related to liquidity, turnover and free float will be considered for inclusion, and (b) the stock that is included in the index should have market capitalisation, which is 1.5 times the market cap of the stock that is excluded.

Similarly, Edelweiss Research has filtered the stocks that fulfil the criteria for inclusion in the Nifty at the current market price. The market value of JSW Steel is currently over 1.5 times than that of Lupin, it said.“In the pecking order of fulfilment of eligibility criteria for inclusion in Nifty Index, apart from JSW Steel, Britannia Industries is the next best suitable candidate that might surpass JSW Steel in the event of a price appreciation in the run-up to the cut-off date of July 31, 18,” Edelweiss noted.  

“Exit is likely for Lupin as its free float market cap has come down recently coupled with declining prices over the last few months,” asserted Chandan Taparia, derivative analyst at Motilal Oswal.