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MOSL: INDIA STRATEGY (Nifty reconstitution: Financials’ weight to inch up further; Healthcare weight to reduce to nine-year low

India Startegy (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, 2nd 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.

 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.