Index, ETF fund managers will have to realign portfolio

As the NSE decided to replace Wipro and Siemens with NMDC and IndusInd Bank in the 50-share Nifty benchmark from April 1, the outgoing stocks witnessed selling pressure.

Siemens, in fact, registered its 52-week low at Rs 572.75 on the NSE on Thursday; it closed at Rs 574, a fall of 5 per cent over the previous day's close of Rs 604.6. Similarly, Wipro also crashed 3.3 per cent at Rs 396.

NMDC, however, closed one per cent higher at Rs 148.30. After remaining in the green for most part of the day, IndusInd Bank slipped 65 paise or 0.15 per cent at Rs 440.

Nifty is being tracked widely by domestic and global fund managers for a variety of purposes such as benchmarking fund portfolios, index-based derivatives and index and exchange-traded funds.

More pressure on cards

Fund managers have to realign their portfolio in tune with the benchmark. This will add more pressure in the coming days for Siemens and Wipro, said analysts.

Currently, 14 index funds and six ETFs track Nifty as their benchmark. Six international funds, including DB X-trackers, iShares India Nifty and XIE Shares India, also have Nifty as their benchmarks.

However, Wipro is expecting to re-enter the Nifty soon once the restructuring is over.

“A corporate action like our demerger of a listed company would generally result in a short-term withdrawal of the scrip from the index as it has been happening in the past where such corporate action had been initiated.

“Wipro board recently approved the demerger of the non-IT businesses — Wipro Consumer Care and Lighting (including furniture business), Wipro Infrastructure Engineering (hydraulics and water businesses) and Medical Diagnostic Product and Services business — into a privately-held company to be named ‘Wipro Enterprises Ltd’.

“We expect restoration of the same on completion of the corporate action, which we expect to conclude in the next few months,” Bangalore-based Wipro said in a statement.

‘Matter of concern’

To be part of Nifty, a stock should meet the liquidity (measured by the impact cost) and free float (at least 10 per cent shares should be readily available for trading) criteria.

According to Mr Janganattham Thunuguntla of SMC Global Securities, iconic company such as Wipro getting out of Nifty is a matter of concern. “However, it will re-enter Nifty eventually,” he added.

(This article was published on February 14, 2013)
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