Market Shake-Up: How NSE Rejig Is Driving $187 Million in Passive Inflows Across Key Indian Companies

Understanding the NSE Index Rejig and Its Market Impact

As the financial year draws to a close, the National Stock Exchange (NSE) has announced significant changes to its indices. This periodic reshuffling is designed to realign the composition of its benchmarks based on market performance, size, and other metrics. According to a report by Nuvama Institutional Equities, the upcoming adjustments will result in a net passive inflow of $187 million across seven prominent companies. The changes are set to take effect on December 30, 2024, and will have far-reaching implications for investors and the broader market.

Top Beneficiaries of the NSE Rejig

1. NTPC Limited

• Inflow: $74 million

• Profile: As a leading public sector power producer, NTPC is poised to see the highest inflow among the reshuffled companies. The surge highlights growing investor confidence in India’s energy infrastructure and NTPC’s strategic importance in meeting the country’s power demands.

2. Punjab National Bank (PNB)

• Inflow: $25 million

• Profile: PNB, a government-owned banking institution, is another major beneficiary. Its inclusion reflects its stabilizing position within the banking sector, bolstered by reforms and a stronger balance sheet.

3. IndusInd Bank

• Inflow: $23 million

• Profile: With robust financials and a focus on retail and corporate banking, IndusInd Bank is set to gain significant passive investments, enhancing its liquidity and investor appeal.

4. Federal Bank

• Inflow: $18 million

• Profile: Federal Bank’s growing presence in retail banking and a strong regional footprint in South India make it an attractive target for index funds.

5. Bank of Baroda (BoB)

• Inflow: $17 million

• Profile: The state-owned lender has been making headlines for its efforts in digital transformation and asset quality improvement, driving investor interest.

6. Adani Enterprises

• Inflow: $15 million

• Profile: Adani Group’s flagship company has been riding high on growth in infrastructure and renewable energy projects. Adani Enterprises’ inclusion signals continued investor optimism despite broader market fluctuations.

7. ICICI Bank

• Inflow: $14 million

• Profile: As India’s largest private sector bank, ICICI Bank’s diverse portfolio and strong fundamentals ensure its place among the biggest gainers from this reshuffle.

Adani Group’s Stock Performance Amid the Rejig

Adani Group stocks have seen a significant rally, with prices rising between 4-5% in recent sessions. Among the group, Adani Green Energy led the gains with a remarkable 4.91% jump, closing at ₹1,081.80 on the Bombay Stock Exchange. The rally comes despite a flat performance in broader indices like the Sensex and Nifty 50, reflecting strong buying momentum within Adani’s portfolio.

Who Are the Losers?

While the rejig brings inflows for some, others will see notable outflows:

• State Bank of India (SBI): Set to face the largest outflow of $57 million.

• HDFC Bank: Expected to lose $47 million, reflecting its reduced weighting.

• Power Grid Corporation and Kotak Mahindra Bank will also experience significant outflows, alongside companies like Bharat Electronics.

Sectoral Insights: Nifty Bank and Public Sector Enterprises

Nifty Bank

Within the Nifty Bank index, Punjab National Bank and IndusInd Bank emerge as key gainers, with inflows of $25 million and $23 million, respectively. Meanwhile, stalwarts like HDFC Bank, SBI, and Kotak Mahindra Bank will face outflows, underscoring a shift in market focus towards mid-tier and public sector banks.

Public Sector Enterprises (CPSE)

Companies such as Power Grid, Coal India, and Bharat Electronics are expected to witness significant outflows, reflecting challenges in aligning with investor preferences for growth and efficiency.

Implications for the Indian Stock Market

1. Increased Liquidity for Beneficiary Stocks

The net passive inflows from index funds will boost liquidity and investor interest in the seven beneficiary companies, potentially driving up their share prices in the short term.

2. Shifting Investor Sentiment

The rejig underscores changing market dynamics, with increased focus on banking, renewable energy, and consumer-facing sectors.

3. Pressure on Underperforming Sectors

Outflows from companies like SBI and Power Grid highlight areas where investors are seeking better returns or diversification.

What Investors Should Watch

The NSE index reshuffle is more than just a periodic adjustment—it’s a reflection of evolving market trends and investor priorities. Companies like NTPC, Adani Enterprises, and PNB stand to gain from enhanced visibility and passive inflows, while others face challenges in maintaining their index presence.

As December 30 approaches, investors should monitor these changes closely, assessing how inflows and outflows could impact stock performance and broader market sentiment. The reshuffle presents both opportunities and risks, emphasizing the importance of strategic investment decisions.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research and consult financial advisors before making investment decisions.