The Nifty 50, the flagship index of the National Stock Exchange, is one of the most widely tracked and referenced benchmarks in the Indian stock market. Twice a year, the Nifty 50 index undergoes a rebalancing process, which plays a crucial role in maintaining its relevance and accuracy as a representation of the Indian equity market.
The process of rebalancing involves reviewing the constituents of the index and making necessary adjustments. In the case of the Nifty 50, this rebalancing occurs semi-annually, typically in March and September.
The rebalancing is based on predefined criteria, such as market capitalization, liquidity, and sector representation, to ensure the index remains a reliable indicator of the Indian equity market.
The Index Maintenance Sub-committee reviews the constituents of the Nifty 50 and determines which stocks should be added or removed from the index. The decisions are primarily based on factors like market capitalization and trading volumes.
Its rebalancing often attracts attention from market participants. The inclusion of a stock in the index can lead to increased demand for that particular stock, while its exclusion may result in selling pressure. As a result, the rebalancing process can cause price fluctuations and increased trading volumes for the affected stocks.
In this article, we will analyse the stocks that have been added and removed from the Nifty 50 during the index’s rebalancing process. Additionally, we will compare the performance of these stocks from the date of the changes to the corresponding day of the following year.
| Date of Replacement | Former Constituent | Former Constituent | Replaced By | Replaced By | ||||
| Price on Replacement Date | Price Next Year | % Return | Price on Replacement Date | Price Next Year | % Return | |||
| 31-Mar-17 | BHEL | 108.55 | 82.45 | -24.0% | Indiabulls Housing Finance | 997.75 | 1243.85 | 24.7% |
| Idea Cellular | 51.85 | 47 | -9.4% | Indian Oil Corporation | 129 | 113.65 | -11.9% | |
| 26-May-17 | Grasim Industries | 907.7 | 1060.3 | 16.8% | Vedanta | 242.65 | 253.65 | 4.5% |
| 29-Sep-17 | ACC | 1656.9 | 1573.6 | -5.0% | Bajaj Finance | 1838.05 | 2208.5 | 20.2% |
| Bank of Baroda | 137.5 | 104.5 | -24.0% | Hindustan Petroleum | 426.8 | 243.15 | -43.0% | |
| Tata Power | 77.8 | 67.95 | -12.7% | UPL | 519 | 443 | -14.6% | |
| 02-Apr-18 | Ambuja Cements | 240.2 | 229.95 | -4.3% | Bajaj Finserv | 526.75 | 727.95 | 38.2% |
| Aurobindo Pharma | 592.55 | 786.25 | 32.7% | Grasim Industries | 1089.25 | 845.5 | -22.4% | |
| Bosch India | 18515 | 17946 | -3.1% | Titan Company | 944.1 | 1111.9 | 17.8% | |
| 28-Sep-18 | Lupin | 900.95 | 717.25 | -20.4% | JSW Steel | 381.65 | 232.5 | -39.1% |
| 29-Mar-19 | Hindustan Petroleum | 283.85 | 170.25 | -40.0% | Britannia Industries | 3085.5 | 2473.5 | -19.8% |
| 27-Sep-19 | Indiabulls Housing Finance | 390.1 | 155.2 | -60.2% | Nestlé India | 13740.9 | 15719.8 | 14.4% |
| 19-Mar-20 | Yes Bank | 53.5 | 14.95 | -72.1% | Shree Cement | 17731.45 | 26936.7 | 51.9% |
| 31-Jul-20 | Vedanta | 113.8 | 301.85 | 165.2% | HDFC Life | 627.1 | 664.05 | 5.9% |
| 25-Sep-20 | Zee Entertainment | 198.2 | 322.25 | 62.6% | SBI Life Insurance Company | 797.05 | 1222.8 | 53.4% |
| Bharti Infratel | 182.9 | * | * | Divi’s Laboratories | 3061.45 | 4948 | 61.6% | |
| 31-Mar-21 | GAIL | 90.25 | 103.55 | 14.7% | Tata Consumer Products | 638.9 | 777.4 | 21.7% |
| 31-Mar-22 | Indian Oil Corp | 79.3 | 77.9 | -1.8% | Apollo Hospitals | 4516.2 | 4310 | -4.6% |
| 30-Sep-22 | Shree Cement | 21033.1 | 24261 | 15.3% | Adani Enterprises | 3455.7 | 2387.9 | -30.9% |
* Bharti Infratel merged with Indus Tower on Nov 2020
Based on the provided data, a total of 19 stocks were added or removed from the Nifty 50 index between March 31, 2017, and September 30, 2022. Out of these 19 stocks, only six managed to generate positive returns over the following one-year period, while the remaining stocks experienced negative returns.
Vedanta Ltd and Zee Entertainment showed the highest returns, with 165.2% and 65.6% respectively. On the other hand, Yes Bank, India Bulls Housing Finance, and Hindustan Petroleum were the biggest losers, generating negative returns of 72%, 60%, and 40% respectively.
When examining the performance of the added stocks within the Nifty 50, eight of them delivered negative returns, while the remaining eleven generated positive returns.
The top performers among the added stocks were Divis Laboratories, SBI Life Insurance, and Shree Cement, which generated returns of 61%, 53%, and 52% respectively. Hindustan Petroleum and JSW Steel were the top losers, with negative returns of 43% and 39% respectively.
Furthermore, the majority of gainers were among the stocks included in the Nifty 50, while most of the losers were from the stocks that were excluded from the index.
From this analysis, we can conclude that the inclusion or exclusion of stocks in the Nifty 50 may have a short-term impact on their performance. However, in the long run, a company’s fundamentals and market conditions tend to be the primary drivers of its share performance.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions.
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