India's oldest bourse BSE is set to revise the constituent list in the benchmark 30-share Sensex, which may see at least two stocks being replaced. The announcement is scheduled for May 23 and capital inflows and outflows are expected to commence from June 20.
Tata Group apparel retailer Trent Ltd. is likely to be added, with an anticipated inflow of $278 million or around Rs 2,400 crore, representing 2.5 times its average daily volume (ADV), according to IIFL Alternate Desk. The stock, which has fallen 16% in the last six months, is currently part of the BSE 100 index of large-cap stocks.
Another potential candidate is Bharat Electronics Ltd., which could see inflows of $275 million, equating to 3.1 times its ADV. A darling of the street from the defence pack and a part of BSE 100, BEL shares have surged nearly 40% in the last six months.
Conversely, Nestle India Ltd. could be slated for deletion, with an estimated outflow of $210 million or Rs 1,800 crore, a substantial 7.7 times it's ADV. The stock has risen 8% in the last six months.
Under a cloud of suspected fraud and corporate governance concerns, IndusInd Bank Ltd. may also be excluded from the Sensex, potentially facing outflows of $135 million or Rs 1,155 crore, which is 1.1 times its ADV.
Index rejigs are a key event for the market because they help the market participants gauge the direction in which the funds are moving. The periodic rebalancing of the Sensex ensures the benchmark index remains representative of India's evolving market dynamics.
When an index is reorganised, exchange-traded funds and mutual funds that track that index perform a rebalancing exercise. This is crucial for them to re-align their portfolios with the new composition of the index.
Essentially, the index's constituents are adjusted to maintain the intended asset allocation proportions or to keep the overall risk level consistent with the index's predefined methodology.
The rebalancing activity usually begins days before the date the changes are implemented.
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