Come March 31, Tata Consumer Products Ltd will replace GAIL India Ltd in a half-yearly reshuffle of the benchmark Nifty 50. This change will also be made to the Nifty 50 Equal Weight Index. The Nifty 50 composition is reviewed and changes made two times a year (March and September).
The review is taken up by the Index Maintenance Sub-Committee, according to the NSE. It is expected that Tata Consumer will receive passive inflows of Rs 650 crore while GAIL could expect an outflow of Rs 410 crore, owing to the replacement on the Nifty 50. Also, as of January this year, Tata Consumer had an estimated weight of 60 bps on the index while GAIL had an estimated 40 bps weight.
Tata Consumer Products, formerly Tata Global Beverages, is a consumer goods firm and a subsidiary of the Tata Group.
The inclusion of Tata Consumer Products makes it the fifth company of the Tata Group to be included in the index. Tata Motors, TCS, Titan and Tata Steel are part of the Nifty 50. GAIL India was first brought into the Nifty 50 in 2003, and this exclusion marks the end of an 18-year presence on the index.
GAIL India is a government-owned natural gas processing and distribution company and owns 60 per cent of the country’s over 26,000-km network of gas pipeline. There have been proposals to bifurcate the pipeline business but such plans have been put on hold by the Oil Ministry.
Nifty 50 and its significance
The Nifty 50 represents the weighted average of 50 of India’s largest companies listed on the NSE. It is a list of companies that are selected from the Nifty 100 and is a reflection of the stock market. The Nifty 50 is used for benchmarking fund portfolios, index funds and index-based derivatives. It represents nearly 66 per cent of the free float market cap of the NSE.
What is the basis on which a company is included in the Nifty 50?
The criterion on which a company is included in the index is called free float market capitalisation. When a company’s size is assessed by market capitalisation or market cap, it is done so by multiplying the outstanding shares and the price of each share. In the free float market cap method, shares that are held by private players like promoters, employee welfare trusts, founders, directors or government among others are excluded. A company’s market cap is evaluated on the equity shares it has issued and are available for trading.
The average free-float market cap needs to be at least 1.5 times the average free float market cap of the smallest member of the index.
According to the NSE India website, the eligibility for inclusion in the Nifty 50 includes Nifty 100 index constituents that are available for trading in the Futures & Options segment of the NSE.
Also, the stock needs to have traded at an average impact cost of 0.50 per cent or lower in the last six months for 90 per cent of observations for a portfolio of Rs 10 crore, as per the NSE website’s eligibility criteria. Impact cost is the cost of execution of a transaction in a a stock for a certain prefixed order size at any point in time.
Free float market cap of Tata Consumer and GAIL
Reports show that the free float market cap for Tata Consumer stood at Rs 36,989 crore on Tuesday. For GAIL, the free float market cap was at Rs 30,570 crore.
Earnings announcements of the two firms
Earlier, Tata Consumer Products posted a net profit of a little over Rs 237 crore in the quarter ended December 2020, a rise of 25.26 per cent, from its profits in the same quarter last year. Also, reports suggest that Tata Consumer Products
For GAIL, the third quarter of FY 2020-21 showed a 6.5 per cent dip in its net profits to a little over Rs 1897 crore, from its earlier Rs 2029 crore for the same quarter in the previous fiscal.
The inclusion of Tata Consumer Products will mean an increase in consumer weight on the Nifty to hover over 11.5 per cent. As of now, Tata Consumer will be the seventh consumer stock in the Nifty 50 index.
The country’s fast moving consumer goods sector (FMCG) has reported a 7.3 per cent growth in the December quarter, according to a NielsenIQ Retail Intelligence report. As consumers have been stepping out, following the relaxation of pandemic-related restrictions over the past months, India’s big cities have witnessed an increase in growth, registering a 0.8 per cent y-o-y growth for the December quarter, according to Nielsen.
The inclusion of a consumer products firm into the Nifty 50 along with the return of consumer spending in India will come as a shot in the arm for the FMCG sector.