NSE Allows Demerged Entities To Be Retained In Indices

The National Stock Exchange has revised the methodology for handling demergers, allowing the demerged entities to be retained in the index.

According to existing norms, demerged entities are excluded from indices soon after shareholders approve the scheme of arrangement for the demerger, with or without including an eligible stock as a replacement.

In a statement on Wednesday, the NSE said the demerged company would be retained in the index if a special pre-open session is conducted by the exchange.

Such a session is conducted for price discovery of all stocks in cases involving corporate restructuring, in accordance with an NSE circular dated May 27, 2020.

If a special pre-open session has not been conducted by the exchange, then the demerged entity will be removed from the index at the beginning of T-1 day.

The demerged business will be included in the index at a constant price, "which is difference between the demerged company's closing price on T-1 day, wherein T is ex-demerger date and price derived during special pre-open session on the ex-demerger date", the NSE statement read.

The spun-off business will be excluded from the index at the end of the third day of its listing. If the demerged entity hits the price band on the first two days, then exclusion will be deferred by another three days. If the spun-off business hits the price band again on the third day, its exclusion will not be deferred anymore.

The changes will be applicable to all schemes of arrangement involving demerger approved by shareholders on or after April 30.

"The above change is expected to help in reducing churn in index constituents resulting from corporate action involving demergers," NSE said.

These reforms in demerger norms come as Reliance Industries Ltd. gears up to demerge its financial services arm and list the new entity as Jio Financial Services Ltd.

Announcing the financial results for the quarter and year ended March 2023, the conglomerate's Chairperson Mukesh Ambani said the demerger would be completed this year.