Agrochemical firm UPL Ltd., Bajaj Finance Ltd. and Hindustan Petroleum Corporation Ltd. are likely to be included in the Nifty 50 index, replacing ACC Ltd. , Tata Power Company Ltd. and Bank of Baroda, according to an IDFC Securities report.
NSE's benchmark index Nifty 50 is re-balanced with fresh additions and exclusions twice a year -- January 31 and July 31 being the cut-off dates. The exchange releases a notice every time it makes a change in the composition of stocks. This notice is given before four weeks from the date of change.
Compulsory de-listing, corporate action and availability of a better candidate are reasons that prompt a change in the index, the report added.
Since Nifty 50's composition is decided by the free float market capitalisation (FFM) of companies, the stock with the highest FFM in the replacement pool, substitutes a stock already listed in the index with the lowest FFM.
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Criteria For Selection In Nifty 50
- The stock should have traded at an average impact cost of 0.50 percent or less during the last six months for 90 percent of the observations, for the basket size of Rs 2 crore. Market impact cost reflects the costs faced when actually trading a stock in an index.
- The eligible universe of stocks is now limited to only those who fall under the Nifty 100 index.
- Earlier, the entering stock's FFM was required to be at least twice the FFM of the current smallest stock on Nifty 50. Now that benchmark has been brought down to just 1.5 times.
- A company which comes out with an initial public offering (IPO) will be eligible for inclusion in the index, if it fulfills the normal eligibility criteria for the index for a three-month period instead of a six-month period.
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