Sensex And FTSE Rejig Today: Zomato, ICICI Bank, Kotak Mahindra Bank Shares Could Turn Volatile— Here's Why
Index funds and ETFs have to adjust their holdings in line with the rejig during the last 30 minutes of trade, driving demand.
Friday is setting out to be a volatile day for stocks entering the Sensex and FTSE indices, as the rebalancing coincides with Sensex's weekly options expiry. Shares of food delivery platform Zomato Ltd. and frontline private lenders ICICI Bank, Kotak Mahindra Bank and Bajaj Finance will be in demand on in the last leg of trading tomorrow, with their entry to the gauges.
What will further weigh the Sensex is the US Fed's 'hawkish rate cut' that could introduce further market volatility.
Zomato will enter the BSE Sensex at the end of this week. The Blinkit parent has seen its share price rise 135% so far this year. It will replace JSW Steel Ltd. on the BSE benchmark index.
Sensex-linked passive funds are required to adjust their holdings to reflect the index components in the last 30 minutes of the trade as per volume weighted average price. This process will lead to heightened demand for Zomato shares and sale of JSW Steel shares during the same time.
The adjustment is done in a manner that the stock bought has to align with the weightage of the stock in the Sensex upon closing, else it will lead to tracking error. That is, the index and exchange traded funds will have to buy shares of Zomato to match the weight of the stock in the index.
It is estimated that entry of Zomato into the index could bring inflows of at least $513 million, according to Nuvama. JSW Steel's exit could see outflows of $252 million as index and exchange traded funds based on the benchmark will look to realign its portfolio to the Sensex constituents, the brokerage said.
As per current prices, Zomato will have a market weight of 2.4% in the index, while the outgoing stock, Jindal Steel, had a weight of 0.9%.
The changes in the index will also lead to decline in weights of other shares, which in turn will see some selling as part of the Sensex rejig.
Stocks expected to see some decline in weights include Mahindra & Mahindra Ltd., ITC Ltd., Infosys Ltd. and Sun Pharmaceutical Industries Ltd. Together these stocks could see an outflow of little over $100 million in the last 30 minutes of trade.
To be clear, the volatility tomorrow is not expected to be same as what was seen with HDFC Bank Ltd. Passive funds had rushed in to buy the stock to adjust to the MSCI Index rejig following a weight increase.
Among the biggest exchange traded fund that will be most active on that day will be SBI BSE Sensex ETF. The ETF has an asset under management of Rs 1.21 lakh crore, according to data available on the Association of Mutual Funds in India website. Other big Sensex-based ETFs include UTI BSE Sensex ETF with AUM of Rs 46,412 crore, ICICI Pru BSE Sensex ETF with AUM of Rs 14,544 crore and Nippon India BSE Sensex ETF with AUM of Rs 12,714 crore.
Together, index funds and ETFs based on the Sensex have a total asset under management of Rs 2.21 lakh crore. In addition, overseas passive funds linked to the Sensex account for $600 million in AUM.
FTSE Rejig On Dec. 20
The Sensex rejig will also be accompanied by rejig in the FTSE indices, which is also scheduled for Dec. 20. The rejig in FTSE indices is likely to see inflows of up to $700 million on Friday. The index balancing will be undertaken in the last 30 minutes of trade, coinciding with Sensex rejig and expiry of the Sensex Options.
Bharti Hexacom Ltd. and Go Digit General Insurance Ltd. have been included into the indices and are expected to bring inflows of around $55 million. But the majority of inflow will come in as a result of increase in weight of ICICI Bank Ltd., Kotak Mahindra Bank Ltd. and Bajaj Finance Ltd. Together, these three stocks are expected to bring in flows of nearly half a billion in the last 30 minutes of the Friday trade, according to Nuvama.
Other inclusions to the FTSE indices include General Insurance Corporation of India, Prestige Estates Projects Ltd., Nexus Select Trust, Thermax Ltd., Network18 Media & Investments Ltd., Techno Electric & Engineering Co., Sansera Engineering Ltd., Metro Brands Ltd. and PTC Industries Ltd. The flows through the stocks is pegged to be to the tune of $80 million in the last 30-minutes of trade on Friday.
