Britannia might replace HPCL in the Nifty 50 index, says brokerage

Consumer goods company Britannia Industries could replace state-owned oil marketing company Hindustan Petroleum Corporation (HPCL) in the benchmark Nifty 50 index, said domestic brokerage ICICI Direct. Besides, JSW Steel or Godrej Consumer Products also have a fair chance of replacing Lupin in the index, the brokerage added.

According to brokerages, NSE could announce changes to its index next month and it could become effective from the start of the October series derivatives contract.

As the Nifty 50 index is widely tracked by exchange-traded funds (ETFs), any changes to its components impacts liquidity of a stock. Typically, a stock that is included sees capital inflows depending upon the weightage assigned to it. Similarly, a stock sees capital outflows following its exclusion.

There are two broader reasons for replacement of a stock in an index. These include corporate action such as delisting or merger or availability of a better candidate. For the latter, the stock to be included should have at least 1.5 times the market capitalisation of the stock that is to be excluded.

ICICI Direct has filtered the stocks which fulfil the criteria for inclusion in the Nifty at the current market price.

The market value of Britannia, JSW and Godrej Consumer is currently over 1.5 times that of HPCL and Lupin. Among the three, the Wadia group company has the highest market cap.

The components of the Nifty 50 index are reviewed on a half-yearly basis. The exchange gives a four-week notice to the market before making changes to the index. Also, not more than 10 per cent of the stocks can be replaced in a calendar year.

“The October series review would be the second and last change for the current year. In the last review, three changes were made in the Nifty. Thus, we can expect two more changes in the Nifty,” says a note from ICICI Direct.

In the last round of changes, that took effect in April, Bajaj Finserv, Grasim Industries and Titan Company were included in the index, while Ambuja Cements, Aurobindo Pharma and Bosch were excluded.

Hindustan Petroleum Corporation Ltd.(HPCL)