LTIMindtree to replace HDFC in Nifty 50 index

economictimes.indiatimes.com:

IT company, is entering the Nifty on Thursday, replacing HDFC on the benchmark index. According to Nuvama Alternative Research, LTIMindtree could see an inflow of about $155 million (₹1,275 crore) from passive funds like exchange traded funds (ETFs) and index funds due to inclusion in the index on July 13.

HDFC and HDFC Bank completed their merger on July 1 and have set July 13 as the record date for the merger. Many investors bought the stock in anticipation of a rally due to an inflow from the passive funds.

Analysts said shares of companies that are due to be part of a main index surge because of buying by passive funds, whose portfolios are linked to the stock weights of a benchmark index. An analysis of how much a stock has moved after inclusion in the benchmark index in the past eight years showed that most stocks usually tend to rally post-inclusion.

About 22 stocks have been added to the Nifty index since January 2016, giving an average return of 2% in three months, 6.5% in six months, and 12% in the one-year period after the inclusion. “About 60% of the stocks usually tend to rally post-inclusion due to the impact of the reshuffling of index funds and global exchange-traded funds,” said Apurva Sheth, head of market perspectives at SAMCO Securities.

“These funds generally replicate the index, so any inclusion results in the addition of the same in their portfolio resulting in fund flows in the stock with an increase in delivery volumes.” While Shree Cement, Divi’s Lab, and SBI Life, which were added to the Nifty in 2020, gave a return of 38%, 69%, and 52%, respectively, HDFC Life gave just 5% returns in one year. However, Apollo Hospital, which was added in March 2022, shed 6.5% in the subsequent year.