26 September 2017
India Strategy
BSE Sensex: 31,627
Latest Strategy Report:
Sectoral weights in Nifty
S&P CNX: 9,873
Nifty reconstitution; Marginal FY19E EPS downgrade
Weight of Private Financials to increase 60bp; PSU Banks to hit new low
NSE Nifty-50 composition is all set for a reshuffle on Friday, 29 September 2017.
Bajaj Finance, HPCL and UPL will replace ACC, Bank of Baroda and Tata Power. Tata
Motors, which carries Differential Voting Rights (DVR), will be excluded – it was an
additional stock in the benchmark.
In this report, we highlight how these changes will (i) impact the earnings for the
benchmark and (ii) alter the weights of various sectors.
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Nifty-50 reconstitution: NBFC’s weight nearing double-digit
Bajaj Finance will be included in the benchmark with 1% weight, taking NBFC’s
weight to 9.5% (+90bp).
HPCL will enter with 0.9% weight, helping Oil & Gas to cement its position in
the benchmark. This is first time in the history of the benchmark when all three
OMCs will be part of the index. UPL will enter the index with 0.8% weight.
With the exit of Bank of Baroda (weight: 0.4%), PSU Banks’ weight will be at an
all-time low of 2.5%. Other losers include Utilities (-40bp), Cement
(-40bp), Automobile (-40bp) and Private Banks (-30bp).
Least impacted sectors would be Technology, Consumer, Healthcare, Capital
Goods, Metals, Telecom and Media.
Post this reshuffle, BFSI will have an index weight of 35.8% (+30bp), almost
equivalent to the combined weights of Oil, Technology and Auto.
Aggregate weight of the existing 47 Nifty-50 stocks will decline by 120bp.
Top-5 stocks to be most impacted (in terms of weight) by the reshuffle: HDFC
Bank (-12bp), HDFC (-9bp), Reliance Ind (-9 bp), ITC (-8bp) and ICICI Bank (-6bp).
Top-10 stocks currently contribute 53.5% of Nifty-50. Post reshuffle, this is
likely to come down to 52.8% (-70bp).
Nifty EPS for FY18 will see marginal upgrade of 0.2%. It will, however, see a
downgrade of 0.4% for FY19, primarily due to a higher increase in free float
market cap of 1.6% compared to a rise of 1.8%/1.1% in free float PAT for
FY18/FY19.
We now estimate Nifty EPS at INR491 for FY18 (+15.9%) and ~INR605 for FY19
(+23.2%).
Notably, the cumulative free float market cap of the new stocks to be included
is 2.4x of the stocks to be excluded from the index.
Nifty trades at a P/E of 20.4x on FY18E earnings based on current composition;
this will remain unchanged post reshuffle. However, based on FY19E earnings,
Nifty P/E will expand marginally from 16.4x to 16.5x post the reshuffle.
Of top-5 stocks to be most impacted, three are from Private Financials
Nifty EPS downgrade of 0.4% for
FY19
Nifty EPS: FY18E unchanged, FY19E to see marginal cut of 0.4% to INR605
Gautam Duggad
- Research Analyst
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
Deven Mistry
- Research Analyst
(Deven@MotilalOswal.com); +91 22 3982 5440
Sep 2017
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Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.