NIFTY INDICES - ECONOMY

News: Inclusion of Adani firms in multiple NSE indices raises concern

 

What's in the news?

       In a new move that raises investor concerns, National Stock Exchange (NSE) indices decided on February 17 to include five Adani firms in 14 Nifty indices.

 

Key takeaways:

       Financial experts are seeking urgent intervention by the NSE Board and the market regulator SEBI to review the move, which would drive lakhs of investors’ savings into the Adani group’s sinking stocks from March 31.

       The stocks being included in its indices, among others, are Adani Wilmar (added to the Nifty Next 50 and Nifty 100), Adani Total Gas (Nifty Shariah 25) and Adani Power, which has been added to 10 different indices.

 

Criteria for inclusion in Nifty 50:

The criteria for inclusion in the Nifty indices are as follows.

1. Listing: The company should be listed on the National Stock Exchange (NSE).

2. Market Capitalization: The company should have a market capitalization that is among the top 500 companies listed on the NSE. For inclusion in the Nifty 50, the market capitalization should be among the top 50 companies.

3. Liquidity: The company should have traded at an average impact cost of 0.5% or less during the last six months for 90% of the observations for a portfolio of Rs.10 crores.

4. Free Float: The company should have at least 10% of its total shares available for trading.

5. Sector Representation: The company should represent the relevant sector that it belongs to.

 

Impact of including in Nifty Indices:

       The impact of inclusion in the Nifty indices can be significant for the company as it leads to increased visibility and attracts more investors.

       The inclusion can also result in increased trading volumes and higher liquidity for the company’s shares, which can help improve its market capitalization.

       Moreover, the inclusion in the Nifty indices also leads to a higher weightage for the company in exchange-traded funds (ETFs) and other index funds, which can result in higher investment flows into the company.

       However, being excluded from the Nifty indices can have the opposite effect, causing a drop in a company’s stock price and market valuation. This is because exclusion from the indices can signal to investors that a company is no longer considered a strong player in the market, and may face difficulties in attracting investment and growth opportunities.

 

National Stock Exchange (NSE):

       National Stock Exchange was incorporated in the year 1992 to bring about transparency in the Indian equity markets.

       NSE is the largest financial market in India and the fourth largest market in the world by trading volume.

       National Stock Exchange of India Limited was the first exchange in India to provide modern, fully automated electronic trading.

 

Headquarters: Mumbai

 

Features:

       It conducts transactions in the wholesale debt, equity, and derivative markets.

       It allows for new listings, initial public offers (IPOs), debt issuances and Indian Depository Receipts (IDRs) by overseas companies raising capital in India.