22 March 2018
India Strategy
BSE Sensex: 33,006
S&P CNX: 10,115
Nifty reconstitution: Financials’ weight to inch up further
Healthcare weight to reduce to nine-year low; Marginal downgrade in Nifty EPS
NSE Nifty-50 composition is all set for a reshuffle on Monday, 2 April 2018. Bajaj
Finserv, Grasim Industries and Titan Company will replace Ambuja Cement,
Aurobindo Pharma and Bosch in the index.
In this report, we highlight how these changes will (i) impact the earnings for the
benchmark and (ii) alter the weights of various sectors.
nd
NBFC’s weight in the index has
increased 390bp since CY09
NBFC
Nifty-50 reconstitution: NBFC set to command double-digit index weight
The weight of Financials has seen a secular rise in the benchmark indices. Post
the reshuffle, BFSI will have an index weight of 35.7% (+20bp from current
level; +3x in 10 years). Notably, BFSI’s weight will be more than the combined
weights of Oil, Technology and Auto.
Bajaj Finserv will be included in the benchmark with 0.8% weight, taking NBFC’s
weight to 10% – implying a 60bp increase from the current level and almost
50% rise from its weight in CY16 (6.6%).
Grasim Industries will enter with a weight of 1.1% and Titan with 0.9%.
With the exit of Aurobindo Pharma (weight: 0.4%), Healthcare’s weight would
reduce to a nine-year low of 3.2%.
Other sectors that would lose their weight in the benchmark are Automobile (-
50bp), Private Banks (-40bp), Technology (-20bp) and Oil & Gas (-20bp).
Least impacted sectors would be Metals, Utilities, Capital Goods, PSU Banks
and Telecom.
Aggregate weight of the existing 47 Nifty-50 stocks will decline by 150bp post
the reshuffle.
Top-10 stocks to be most impacted (in terms of weight) by the reshuffle would
be HDFC Bank (-15bp), Reliance Ind (-12bp), HDFC (-11bp), Infosys (-9bp), ITC
(-9bp), ICICI Bank (-7bp), L&T (-6bp), TCS (-6bp), Kotak Mahindra Bank (-5bp)
and Maruti Suzuki (-5bp).
Top-10 stocks contribute 55.6% of Nifty-50. Post reshuffle, this is likely to come
down to 54.7% (-90bp).
Of the top-10 stocks to be most impacted, four are from Private Financials
Trend in weights of 25 common
stocks of Nifty since CY07 (%)
50% of Nifty constituents unchanged over 10 years
Out of the 50 stocks in the Nifty, 25 have been part of the index since 10 years.
Of these 25, four each are from Auto, BFSI, Oil & Gas and Technology.
Consumer, Healthcare and Metals have two stocks each, while Capital Goods,
Telecom and Utilities have one stock in the index.
Combined weight of these 25 stocks will decline 110bp to 72% post reshuffle.
In CY17, Nifty-50 saw the highest number of stocks reshuffled in a particular
calendar year – total seven stocks have been reshuffled. Since CY12, 27 stocks
have been reshuffled.
Gautam Duggad – Research Analyst
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
Deven Mistry – Research Analyst
(Deven@MotilalOswal.com); +91 22 3982 5440
Mar 2017
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.
8

India Strategy | Index Reconstitution
Nifty EPS to cut by 0.3%/0.2% for
FY19/FY20
Current estimates
Post reshuffle estimates
692
590
Expect marginal cut of 0.3% in Nifty FY19 EPS to INR589
691
589
Nifty EPS for FY19 will see a marginal downgrade of 0.3%. It will be primarily
due to a higher increase in free float market cap of 1.6% compared to a rise of
1.3%/1.4% in free float PAT for FY19/FY20.
We now estimate Nifty EPS at INR589 for FY19 (+25.5% YoY) and ~INR691 for
FY20 (+17.3% YoY).
Notably, the cumulative free float market cap of the new stocks to be included
is 2.2x that of the stocks to be excluded from the index.
Nifty trades at a P/E of 21.6x on FY18E earnings, based on current composition.
However, based on FY19E earnings, Nifty P/E will remain unchanged at 17.2x
post the reshuffle.
FY19E
FY20E
Key institutional activity in new entrants
Since the announcement of index reshuffle, the new entrants have
outperformed the index. Grasim Industries is the only stock to trade lower (-
1.4%), whereas Bajaj Finserv (+1.9%) and Titan (+5.9%) are trading higher.
Notably, Nifty-50 is down by 2.6% since 21 February 2018.
Domestic MFs hold 0.3% of their total AUM in Titan, and 0.4% of their total
AUM in both Bajaj Finserv and Grasim, which are lower compared to the
benchmark weight (Grasim 1.1%, Bajaj Finserv 0.8% and Titan 0.9% in Nifty-50).
DIIs hold 6.9% (+0.5% QoQ in Dec-2017) and FIIs hold 7.9% (-0.3% QoQ in Dec-
2017) in Bajaj Finserv. In Grasim, DIIs hold 15.6% (+2% QoQ in Dec-2017) and
FIIs hold 26% (unchanged QoQ in Dec-2017). DIIs hold 5.9% (+0.2% QoQ in Dec-
2017) and FIIs hold 21.3% (-0.4% QoQ in Dec-2017) in Titan.
Current FII limit in Bajaj Finserv, Grasim and Titan is 24%, 49% and 35% of the
paid-up capital of the company, respectively.
Exhibit 2: Auto, Healthcare, Pvt. Banks – biggest losers
New Weights w.e.f 2nd Apr
Current Weight
23.8
23.4
12.8
12.6
12.3
3.7
NBFC
Auto
Exhibit 1: NBFCs and Cement will see an increase in weight
Current Weight
New Weights w.e.f 2nd Apr
9.4
10.0
9.9
0.0
0.9
1.5
2.1
9.4
3.2
12.1
Retail
Cement
Healthcare Banks-PVT
Tech.
Oil & Gas
Exhibit 3:
Sectors that will not have material impact due to index reconstitution
Current Weight
New Weights w.e.f 2nd Apr
9.3
9.2
0.7
0.7
0.7
0.7
0.8
0.8
Infra
Media
2.0
2.0
2.4
2.3
3.3
3.2
3.4
3.3
4.1
4.0
Agro Chem.
Telecom Banks-PSU Utilities
Metals Cap. GoodsConsumer
Source: NSE, MOSL
Note: Prices and weight calculation based on closing of 20 Mar 2018
22 March 2018
2

India Strategy | Index Reconstitution
Healthcare weight in the index
to hit nine-year low
Interesting observations from sectoral weight changes in the past decade:
Private Financials at all-time high; PSU Banks at new lows
Over the years, the sectoral representation in Nifty-50 has undergone a sea
change, in consonance with the changes in the underlying economy – new
sectors have evolved, while some of the erstwhile dominant sectors of the
economy have lost relative importance in the new India.
Over the last three years, we have seen new sectors like Infrastructure (Adani
Ports – inclusion from Sep-2015), Agro Chemicals (UPL – inclusion from Sep-
2017) and Retailing (Titan to now be part of index from 2
nd
April 2018) entering
the index.
Financials’ weights have kept rising over the years.
BFSI will now contribute
35.7% (+3x in 10 years) of overall Nifty-50 index.
Private Banks at 23.4% will have the highest weight in Nifty-50, while the weight
of PSU Banks is at a new low of 2.3%.
As more Insurance companies are listed and the relevance of NBFCs goes up, we
expect the weight of BFSI to inch up further.
Healthcare’s weight is down significantly,
and will now be at a nine-year low of
3.2%, reflecting the underlying stress the sector has been undergoing over the
last few years.
HDFC Bank’s weight alone will be ~3x of the entire Pharma
Sector’s weight in Nifty.
Oil & Gas’ weight in the index has been quite volatile in the last decade. The
sector’s weight was at 17.6% around 15 year ago; it climbed to 1
st
position a
decade ago to 25.4%. However, over the last five years, the weight is quite
stable at ~11-12%.
Automobiles’
weight will drop to single-digit (at 9.4%) post exclusion of Bosch.
Consumer’s weight has remained stable
over the last four years, but has
increased significantly (+560bp) over the last 10 years, given its sharp
outperformance v/s the index.
Capital Goods
is now represented by only one stock (L&T) in the benchmark.
The weight of the sector in the benchmark is near its new low.
Metals’ weight has bounced off its lows
of sub-1% in CY15, but it is far off from
the peak of 9.7% in CY03.
Real Estate
has no representation in Nifty-50 today.
New
Avg. Weight
Chg. – New v/s
Sector
CY07
CY08
CY12
CY13
CY16
CY17 Current w.e.f 2nd Apr
CY07-17
Avg. Weight (pp)
Automobiles
3.4
2.5
8.8
8.9
11.8
10.6
9.9
9.4
7.8
1.5
Banks-Private
5.6
5.0
16.9
16.2
21.5
23.5
23.8
23.4
15.4
8.0
Banks-PSU
4.1
5.4
4.7
3.2
3.1
2.8
2.4
2.3
4.1
-1.7
NBFC
2.3
2.3
7.9
6.7
6.6
8.7
9.4
10.0
6.2
3.8
Capital Goods
10.5
7.7
5.9
4.9
4.0
3.8
4.1
4.0
6.5
-2.5
Cement
2.1
1.7
4.2
3.2
3.0
1.6
1.5
2.1
2.7
-0.6
Consumer
3.6
6.5
12.3
11.6
10.1
9.2
9.3
9.2
8.9
0.3
Healthcare
2.2
2.6
5.0
6.0
6.3
4.0
3.7
3.2
4.5
-1.3
Media
0.4
0.3
0.8
0.8
0.8
0.8
0.7
0.1
Metals
9.0
4.8
3.8
4.4
1.5
3.7
3.4
3.3
4.9
-1.6
Oil & Gas
25.4
24.5
12.3
11.7
9.4
12.7
12.3
12.1
14.6
-2.5
Real Estate
2.3
3.0
0.5
0.4
1.1
-1.1
Technology
9.5
9.0
11.4
16.9
14.4
11.4
12.8
12.6
13.4
-0.8
Telecom
11.4
11.6
2.0
1.9
2.3
2.4
2.0
2.0
4.2
-2.2
Utilities
8.2
13.3
4.5
4.0
4.4
3.3
3.3
3.2
5.4
-2.2
Miscellaneous
0.8
1.4
1.4
2.3
1.0
1.3
Nifty-50
100
100
100
100
100
100
100
100
100
Note: Miscellaneous include Adani Ports from CY15 onwards till-date, UPL from CY17 till-date and Titan addition w.e.f from 2nd April.
22 March 2018
3
Exhibit 4: Trend in Nifty sectoral weight (%) – Private Financials at all-time high; PSU at new low

India Strategy | Index Reconstitution
Exhibit 5:
Private v/s PSU weights in Nifty (%)
Index moved to free float from 2009
27.2
PSU’s weight in Nifty
to be in single-digits
14.3
31.4
85.7
68.6
CY08
CY09
CY10
CY11
CY12
CY13
CY14
CY15
CY16
CY17 Current w.e.f
2nd
Apr
Private
10.4
10.9
11.0
PSU
10.1
9.9
13.7
13.3
12.7
11.4
12.6
72.8
CY07
86.3
86.6
87.4
88.6
87.4
89.6
89.1
89.0
89.9
90.1
Source:
NSE, MOSL
Aggregate weight of the existing 47 Nifty stocks will decline by 150bp
Of the top-10 stocks to be most impacted, four are from Private Financials.
Top-10 stocks to be most impacted (in terms of weight) by the reshuffle: HDFC
Bank (-15bp), Reliance Ind (-12bp), HDFC (-11bp), Infosys (-9bp), ITC (-9bp), ICICI
Bank (-7bp), L&T (-6bp), TCS (-6bp), Kotak Mahindra Bank (-5bp) and Maruti
Suzuki (-5bp).
Top-10 stocks currently contribute 55.6% of Nifty-50. Post reshuffle, this is likely
to come down to 54.7% (-90bp).
Exhibit 6: Existing stocks – weight change (bp)
-2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2
-4 -4 -3 -3 -3 -2
-6 -5 -5
-7 -6
-9 -9
-12-11
-15
Source: NSE, MOSL
Exhibit 7: Stock weights w.e.f from 2nd April (%) – top 10 stocks will contribute 54.7% of the index
New Weights w.e.f 2nd Apr
Source: NSE, MOSL
22 March 2018
4

India Strategy | Index Reconstitution
50% of Nifty constituents unchanged over 10 years
Out of the 50 stocks in the Nifty, 25 have been part of the index since 10 years.
Of these 25, four each are from Auto, BFSI, Oil & Gas and Technology.
Consumer, Healthcare and Metals have two stocks each, while Capital Goods,
Telecom and Utilities have one stock in the index.
Combined weight of these 25 stocks will decline by 110bp to 72% post reshuffle.
In CY17, Nifty-50 saw the highest number of stocks reshuffled in a particular
calendar year – total seven stocks have been reshuffled. Since CY12, 27 stocks
have been reshuffled.
Exhibit 8: Weights of the 25 common stocks of Nifty since CY07 (%)
Company
Hero Motocorp
M&M
Maruti Suzuki
Tata Motors
HDFC
HDFC Bank
ICICI Bank
SBI
L&T
HUL
ITC
Cipla
Sun Pharma
Hindalco Inds.
Tata Steel
BPCL
GAIL
ONGC
Reliance Inds.
HCL Tech
Infosys
TCS
Wipro
Bharti Airtel
NTPC
Total of above
Sector
Automobiles
Automobiles
Automobiles
Automobiles
BFSI
BFSI
BFSI
BFSI
Cap Goods
Consumer
Consumer
Healthcare
Healthcare
Metals
Metals
Oil & Gas
Oil & Gas
Oil & Gas
Oil & Gas
Technology
Technology
Technology
Technology
Telecom
Utilities
CY07
0.4
0.6
0.8
0.8
2.3
1.7
3.9
3.5
3.5
1.3
2.2
0.5
0.7
0.8
1.9
0.5
1.3
7.5
11.9
0.6
2.9
3.0
2.2
5.4
5.9
66.1
CY08
0.9
0.4
0.8
0.4
2.3
2.3
2.7
4.5
2.5
3.0
3.5
0.8
1.2
0.5
0.9
0.7
1.4
7.8
10.6
0.4
3.5
2.6
1.9
7.4
8.1
71.0
CY09
1.0
1.5
1.4
1.4
4.5
3.9
6.5
3.9
6.7
1.8
4.3
1.1
0.8
1.3
2.5
0.5
1.2
2.6
12.7
0.5
8.2
2.5
1.3
2.7
1.4
76.0
CY10
1.0
1.9
1.0
2.4
5.2
4.6
7.2
4.0
5.8
1.8
5.1
1.0
1.0
1.8
2.3
0.5
1.3
2.4
9.8
0.6
9.1
3.3
1.4
2.4
1.4
77.9
CY11
1.3
2.2
0.9
2.2
6.2
5.5
5.6
3.0
3.8
3.0
7.7
1.2
1.3
1.1
1.6
0.4
1.2
2.5
8.3
0.7
9.5
4.2
1.5
2.9
1.5
79.1
CY12
1.0
2.3
1.1
3.0
6.8
6.6
7.0
3.3
4.6
2.9
8.4
1.1
1.5
0.9
1.5
0.5
0.9
2.5
7.4
0.9
6.0
3.4
1.1
2.0
1.1
77.5
CY13
1.2
2.1
1.1
3.3
6.0
6.0
6.1
2.2
4.2
2.0
8.6
1.0
2.1
0.8
1.4
0.4
0.7
2.5
7.1
1.6
8.1
5.4
1.8
1.9
1.4
78.8
CY14
1.3
2.0
1.6
3.2
6.4
6.4
7.3
3.4
4.4
1.9
7.3
1.1
2.2
0.7
1.0
0.6
0.7
2.2
5.2
1.5
6.8
4.7
1.3
1.7
1.1
76.2
CY15
1.2
2.1
2.2
2.7
7.0
7.5
5.4
2.4
3.7
2.2
6.5
1.2
3.2
0.4
0.6
0.8
0.6
1.5
5.9
1.7
7.8
4.4
1.3
1.7
1.1
74.8
CY16
1.3
1.8
2.3
3.0
6.6
8.1
4.9
2.6
3.7
2.0
6.8
1.0
2.3
0.7
0.9
1.1
0.7
1.7
5.9
1.6
6.7
4.2
1.0
1.3
1.4
73.4
CY17
1.2
1.7
3.2
2.0
6.7
9.4
5.0
2.8
3.8
2.4
5.5
0.8
1.5
1.0
1.2
1.0
0.8
1.4
7.8
1.2
5.1
3.3
1.0
1.7
1.3
72.8
Current
1.2
1.8
3.0
1.6
7.4
9.6
4.8
2.4
4.1
2.4
5.7
0.7
1.4
0.8
1.2
0.8
0.7
1.3
7.9
1.3
6.0
3.7
0.8
1.4
1.3
73.1
w.e.f
2nd Apr
1.1
1.7
2.9
1.6
7.2
9.5
4.7
2.3
4.0
2.4
5.6
0.7
1.4
0.8
1.2
0.8
0.7
1.2
7.7
1.3
5.9
3.6
0.8
1.3
1.3
72.0
Exhibit 9:
Trend in number of stocks reshuffled in a particular year
7
6
5
4
3
2
4
3
3
4
3
3
Source: NSE, MOSL
22 March 2018
5

India Strategy | Index Reconstitution
Nifty EPS: FY19E to see marginal cut of 0.3% to INR589
Nifty EPS for FY19 will see a marginal downgrade of 0.3%. It will be primarily
due to a higher increase in free float market cap of 1.6% compared to a rise of
1.3%/1.4% in free float PAT for FY19/FY20.
We now estimate Nifty EPS at INR589 for FY19 (+25.5% YoY) and ~INR691 for
FY20 (+17.3%).
Notably, the cumulative free float market cap of the new stocks to be included
is 2.2x of the stocks to be excluded from the index.
Nifty trades at a P/E of 21.6x on FY18E earnings based on current composition.
However, based on FY19E earnings, Nifty P/E will remain unchanged at 17.2x
post the reshuffle.
Exhibit 11: FY20E Nifty EPS to see 0.2% cut
FY20E EPS (INR)
17.2
692
Growth YoY (%)
17.3
691
Exhibit 10: FY19E Nifty EPS to see 0.3% cut
FY19E EPS (INR)
25.9
590
Growth YoY (%)
25.5
589
Current
Revised
Current
Revised
Source: MOSL
Exhibit 12: Stock-wise contribution to growth in FY19E Nifty EPS (INR)
0 0 0 0 0 0 0 0
589
3 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0
4 3 3 3 3 3 3 3 3
6 5
-1 -1 -2
9 8 7 7
1715
463
Source: MOSL
22 March 2018
6

QUANT RESEARCH & INDIA STRATEGY GALLERY
India Strategy | Index Reconstitution
22 March 2018
7

Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
India Strategy | Index Reconstitution
*In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend.
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completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the
views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval.
MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform
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Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm
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Registration details of group entities.: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser:
INA000007100.IRDA Corporate Agent-CA0541. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS
(Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers
Commodities Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products
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