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MOSL: INDIA STRATEGY-Sensex reconstitution, EPS downgrade of 1.5%-Weight of Financials to rise 250bp, Tech weight to hit

India Strategy: Sensex reconstitution, EPS downgrade of 1.5%; Weight of Financials to rise 250bp, Tech weight to hit near-decade low

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• The S&P BSE Sensex composition is all set for a reshuffle on Monday, 19 June 2017. Kotak Mahindra Bank (KMB) will replace GAIL India, and Tata Motors Differential Voting Rights (DVR) will be included as an additional stock in the benchmark.
• In this report, we will analyze how these changes will (i) impact the earnings for the benchmark and (ii) alter the weights of various sectors.

Sensex reconstitution: BFSI will have 36% weight (+250bp)

• ​KMB will be included in the benchmark with 3.5% weight, and thus, will be among the top-10 stocks by weight. Tata Motors DVR will enter with 0.5% weight, helping maintain the weight of Auto sector in the benchmark.
  
• With the exit of GAIL (weight: 0.8%), Oil & Gas stands to lose the most in terms of weight (-110bp to 9%). Other losers include Consumer (-40bp), Technology (-40bp), NBFCs (-30bp), Healthcare (-20bp) and Capital Goods (-20bp).
  
• Least impacted sectors would be Utilities, PSU Banks, Telecom and Metals.
  
• BFSI will have a weight of 36.1% (+250bp) post the reshuffle, which will be almost equivalent to the combined weights of Consumer, IT and Auto.
  

Of the top-10 stocks to be most impacted, four are from Financials

• ​Aggregate weight of the existing 29 Sensex stocks will decline by 320bp.
  
• Top-10 stocks to be most impacted (in terms of weight) by the reshuffle: HDFC Bank (-40bp), HDFC (-30bp), ITC (-30bp), Reliance Inds (-30bp), Infosys (-20bp), ICICI Bank (-20bp), L&T (-20bp), TCS (-20bp), Maruti (-10bp) and SBI (-10bp).