NSE rejigs stocks in Nifty 50 and other indices. What's new?

The National Stock Exchange (NSE) makes a semi-annual change in the stocks that make up its Indices like Nifty50, Nifty Next 50, Nifty 100 etc. From September 30, 2022, Adani Enterprise will be the new stock in the Nifty 50 index as it replaces Shree Cement.

Shree Cement will now move to the Nifty Next 50 Index where it will join other new companies like IRCTC, Adani Total Gas Ltd, Bharat Electronics Ltd, Hindustan Aeronautics Ltd, MphasiS Ltd and Samvardhana Motherson International. 

How are NSE indices made?

The National Stock Exchange lists all of its stocks in descending order based on the market value of the stocks and uses multiple criteria to identify the stocks that will form a part of an index. The NSE groups these stocks into baskets called indices like Nifty 50, Nifty Next 50, Nifty 100, Nifty Mid Cap, Nifty Small Cap etc. 

NSE's largest 50 stocks (ranking 1 to 50) that represent major sectors of the economy form a part of the Nifty 50 index. Whereas the next 50 stocks ranking 51 to 100 fall in the Nifty Next 50 Index. Investors can track these indices to understand how the underlying stocks are doing since it represents about 65% of the 'float-adjusted market capitalization' of the Indian stock market. 

So here are the stocks that have been newly added/ removed from the indices:  

Nifty 50: 

• New stocks added to the index: Adani Enterprise
• Stocks removed from the index: Shree Cement

Nifty Next 50:

• New stocks added to the index: IRCTC, Shree Cements (moved from Nifty 50), Adani Total Gas Ltd, Bharat Electronics Ltd, Hindustan Aeronautics Ltd, Mphasis Ltd and Samvardhana Motherson International 
• Stocks removed from the index: Adani Enterprises (moved to Nifty 50), Jubilant Foodworks, Lupin, MindTree, PNB, SAIL, and Zydus Lifesciences.   

Nifty SME Emerge: 

• Stocks removed from the index:  B&B Triplewall Containers and SecUR Credentials

Why is this stock Rejig important? When NSE index levels change from say 17500 to 18000, this change comes from a collective stock price movement of the stocks that are included in the index. The index needs to have the most influential stocks that represent each sector in the economy to compete with global indices and perform better than them. Also, since NSE indices are the basis of benchmarking for portfolios and also are then the basis of derivative trading in India and abroad, it is essential that domestic indices perform well.

Since a company's performance may change over time, NSE keeps evaluating the stocks on the index and updates the index with the best ones twice a year.

But do these new stocks in the indices not affect the stock market?  The companies that are a part of the index are included after they qualify certain criteria like incorporation, market capitalisation, voting rights, liquidity costs, trading frequency etc. It is quite possible that when one stock replaces the other, there is a change in index levels due to the addition and deletion of stocks.

Though this may lead to volatility in the market, such volatility may last for a small time. This is because, by the time the stock moves up from Nifty Next 50 to the Nifty 50 index, the market is accustomed to perceiving such new stocks as good quality stocks which have become even better over time.