![](\"https:\/\/im.rediff.com\/money\/2021\/feb\/26nse.jpg?w=670&h=900\")
<\/p>\nNSE Indices on Wednesday changed the methodology for handling schemes of demerger involving index constituents.<\/p>\n
<\/p>\n
The index provider said a company undergoing demerger would now be retained in its indices.<\/p>\n
The move comes ahead of the proposed demerger of Reliance Industries’ (RIL’s) financial services arm.<\/p>\n
Under the rules prevailing thus far, RIL — which has the highest weighting among the 50 Nifty components — would have been required to be removed from the index, resulting in a churn by funds tracking the Nifty index.<\/p>\n
NSE Indices said the change in the methodology of Nifty equity indices for the treatment of mergers was in line with global practices and followed feedback received from market participants.<\/p>\n
“The change is expected to help reduce churn in index constituents resulting from corporate action involving demergers,” the index provider said in a press release, adding that the new methodology would be applicable for demerger schemes approved by equity shareholders on or after April 30, 2023.<\/p>\n
RIL has already initiated the demerger process and the scheme is set to be put to vote before shareholders and creditors on May 2.<\/p>\n
Jio Financial Services is expected to list separately on the bourses by September 2023.<\/p>\n
“This change has timely come ahead of the shareholder approval for RIL and Jio Financial demerger.<\/p>\n
“As in the case of the prior methodology, the demerged stock was completely removed from the index after shareholder approval was in place.<\/p>\n
“It’s quite early but once Jio Financial gets demerged and removed from the index, RIL’s weighting can go down by about 60-70 basis points,” said Abhilash Pagaria, head-alternative & quantitative research, Nuvama Institutional Equities.<\/p>\n
RIL has a weighting of more than 10 per cent in the Nifty50 index, which is tracked by exchange-traded funds (ETFs) and passive funds with assets of over Rs 2 trillion.<\/p>\n
NSE Indices said a special pre-open session (SPOS) would be required for the applicability of this new methodology.<\/p>\n
Under this, the entity to be spun off would be removed on the third day of its listing.<\/p>\n
NSE Indices also specified a formula for arriving at a price of the demerged entity.<\/p>\n
Last year, NSE Indices changed the index computation methodology for schemes of amalgamations close on the heels of the announcement of the HDFC Bank-HDFC merger.<\/p>\n
Without the change, both stocks would have been deleted from the index, leading to a churn of close to Rs 50,000 crore in the Nifty.<\/p>\n
At present, HDFC Bank has a weighting of 9.1 per cent in the index and HDFC has a weighting of 6.2 per cent.<\/p>\n