Currently on the basis of float market capitalization and other criteria, HDFC Life Insurance, SBI Life Insurance, Divis Labs, and Dabur India are expected to be included and Vedanta, Zee, Bharti Infratel and Gail are likely to be excluded from Nifty 50.
The norms for including and excluding stocks from the Index
1. The criteria for inclusion in the Nifty 50
The stock in the last six months should have traded at an average impact cost of 0.5% or less for 90% of the observations
Should also have at least 1.5x of the float-adjusted market capitalization of the current smallest index constituent.
The company must be domiciled in India and traded on the exchange.
In order to include a stock into an index, the stock must be available for trading in the F & O segment on the NSE
The other criteria that are considered for including a stock into an index are Market capitalization, liquidity, and trading frequency.
Currently, HDFC Life Insurance, SBI Life Insurance, Divis Labs and Dabur India are expected to be included in the Nifty 50 Index, as they fulfil above-mentioned criteria.
In the last 6 months when Nifty posted a loss of 9%, Divis Lab has posted a return of 39% while Dabur has been giving gains of 7.3%, and HDFC Life grew by 32%
2. What leads to exclusion from the index?
A list of new eligible stocks is drawn twice a year, to review against the current index constituents and in case any changes are to be made, new stocks replace the smallest constituents are excluded. Exclusion may also happen in case of a spin-off, merger or acquisition.
GAIL (India), Bharti Infratel and Zee Entertainment have lost 5 percent to 52 per
cent in the last 6 months.
3. When do the changes take place?
The index is re-balanced twice a year and before making any changes to the index, the ex-change gives four weeks time.
4. Who decides which company will be a part of the benchmark Index?
67 indices under Nifty brand, including the Nifty index, is owned and managed by The India Index Services and Products, a group company of the National Stock Exchange of India.
Index Maintenance Subcommittee set up by IISL makes all decisions on inclusions and exclusions in the index.
5. Does the index level, with the changes made in the Index?
No. When a stock is replaced by another stock in the index, the index divisor is adjusted so the change in index market value that results from the inclusion and exclusion does not change the index level.