Shriram Fin may oust UPL from Nifty, Canara can replace Bandhan in Bank Nifty

Shriram Fin may oust UPL from Nifty, Canara can replace Bandhan in Bank Nifty

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  • January 21, 2024
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Mumbai: Shriram Finance (SFL) could replace UPL on the Nifty 50 index while Canara Bank is likely to replace Bandhan Bank on the 12 constituent Bank Nifty index at the semi-annual review of Nifty indices , which will take effect on 31 March .

The inclusions could attract net inflow of $245 million to the SFL counter and a net inflow of $36 million to Canara Bank from domestic institutions and insurance companies. UPL could also see outflows of $107 million and Bandhan Bank of $39 million, said Abhilash Pagaria, head of quantitative research at Nuvama Wealth, in a note.

UPL and Bandhan after likely exclusions will remain on the broader market Nifty 500.

The official announcement is expected by February end, but Pagaria expects “signific-ant activity” at the stock counters in coming sessions .

“Nifty indices rejig is set for March, and at Nuvama Alternative, we anticipate it to be action-packed. Our high-conviction Nifty 50 entrant is Shriram Finance (with an inflow of $245 mn), while UPL (outflow of $107 mn) is expected to exit. Simultaneously, we foresee Canara Bank displacing Bandhan Bank in Nifty Bank,” Pagaria told Mint.

 

The rebalancing is part of a semi-annual review of the indices by NSE Indices Ltd, an NSE subsidiary. The cut off dates for the rebalancing are 31 January and 31 July each year.

The most important criteria for the inclusion or exclusion are the impact cost, or the cost to execute a transaction on the exchange over a prior six-month period and the average market capitalisation.

Impact cost is based on the liquidity or number of buyers and sellers in the market at given times. Higher the liquidity, lower the impact cost.

The current market cap of SFL is 86,169 crore while that of UPL is 41,452 crore. That of Canara Bank is 86,733 crore while Bandhan Bank’s is at 36,978 crore.

By share performance, SFL has vastly outperformed UPL, generating a six-month return of 25.52% to 2,299 apiece against a negative 12.95% return for UPL to 552.45. Canara Bank has generated a six-month return of 41% to 478 against just 5.3% return of Bandhan Bank to 229.65.

“SFL’s wide-spread presence as one of the leading CV financers and its diversified bouquet of products (which came in from SCUF merger) started showing a strong growth momentum,” noted JM Financial, which had a price target of 2,130 on the stock and a buy rating post its Q2 results. “We expect the margins to sust-ain from here on while healthy PCR (provision coverage ratio) adds to asset quality comfort. We continue to maintain our FY24/FY25 gro-wth and earnings estimates expecting ROA/ROEs of 3.3%/15.5% for FY25E.”

Nirmal Bang, on the other hand, cut agro-chemical producer UPL’s one year price aim by 15% to 620 while retaining a buy on the stock post its Q2 results, which saw it report a 102 crore consolidated adjus-ted loss because of tepid dem-and for its products, destocking and competition.

The benchmark Nifty and the sectoral Bank Nifty are among the most important indices offered by NSE.

Nuvama expects significant movement in Nifty Next 50, with Jio Fin ($77million inf-low) and public sector undertakings like IRFC ($26 million), and Power Finance ($54 million), likely to be included.

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Published: 21 Jan 2024, 09:31 PM IST

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