The Nifty 50 index is poised for a revamp as the revised futures and options (F&O) stock selection criteria is seen paving the way for newly listed companies to join the benchmark index, which is tracked by passive funds with combined assets under management of more than Rs 3.5 trillion ($44 billion).
For the first time in six years, the market regulator Securities and Exchange Board of India (Sebi) has tweaked the stock selection process for the derivatives segment that clocks a turnover of Rs 400 trillion daily.
The move is seen triggering a churn in the F&O segment that issues single-stock contracts on 182 companies.
According to analysts the total count of companies that will be available for trading in the F&O segment is expected to go past 200, with some of the newer companies making way for the older, less liquid ones.
For a company to be part of the widely-tracked Nifty 50 index, being part of the F&O segment is a prerequisite.
As exchanges have not included a single new company to the derivatives segment since January 2022 some large companies that have listed over the past few years have not had a chance to be part of the Nifty index even though they meet other quantitative parameters laid out by the exchanges. However, this could soon change.
Sebi's announcements give us confidence that the speed of introduction for new F&O members will be fast.
If we assume Jio Financial and Zomato make it to the F&O segment before the third week of August, then there is a high chance of them also making it to the Nifty 50 in the September review, said Abhilash Pagaria, head-Nuvama Alternative & Quantitative Research.
The new F&O selection criteria will come into effect after Sebi issues an operational circular.
Regulatory sources have said the inclusion of new stocks can happen immediately after the circular is issued.
While the removal of existing stocks could have a glide path of between three and six months.
Also, this would result in passive inflows of over Rs 3,800 crore in Jio Financial, Zomato and Trent each. On the other hand, LTIMindtree, Divi's Laboratories and Eicher Motors could see selling of over Rs 1,600 crore each.
Pagaria says if there are no changes to the F&O stock list before the third week of August, then Trend and Bharat Electronics could get added to the Nifty replaci ng LTIMindtree, Divi's Laboratories.
