Adani Enterprises’ Nifty50 inclusion to increase inflows by around $200 mn, say analysts

• Adani Enterprises is all set to be included in the benchmark Nifty50 index starting September 30, replacing Shree Cements.
• Analysts believe this will result in an inflow of ₹1,500-1,700 crore in the Adani Enterprises stock, primarily led by buy-ins from index funds.
• We try to decode what the impact of this inclusion can be on investors.

Gautam Adani – India’s richest, and world’s third richest person – is all set to get another major boost to his wealth as Adani Enterprises will enter the benchmark Nifty50 index from September 30.

Adani Enterprises will replace Shree Cements, a leading cement maker which owns brands like Bangur Cement, Bangur Power, Shree Jung Rodhak, among others.

It will be the second Adani group company to make it to the benchmark Nifty50 index, with the first being Adani Ports & SEZ, which was added earlier this year.

According to analysts, this could result in an increased institutional buying in the Adani Enterprises stock.

A report by Edelweiss Securities suggests that this could result in an inflow of $213 million (approx. ₹1,700 crore), while ICICI Securities pegged this number at ₹1,760 crore.

“This change will result in buying worth ₹1,760 crore – fives times the average daily turnover or ADTO for Adani Enterprises and selling worth ₹630 crore or six times the ADTO for Shree Cement from Nifty50 ETF funds,” ICICI Securities said in its report.

Another analysis by IIFL Securities pegs this number at $180 million (approx. ₹1,500 crore).

“With inclusion in the Nifty 50, this will be one of the high beta stocks in the Nifty50 and will play a decisive role in the returns of the Nifty, particularly if there are large swings in the stock price,” Pranit Arora, co-founder and CEO, Univest, told Business Insider India.

‘Over-leveraged’ concerns manageable, says Arora

In August, a report by CreditSights outlined that the Adani Group is “deeply over-leveraged”, resulting in a temporary meltdown in the group’s seven listed stocks, wiping out ₹94,000 crore investor wealth in a day.

According to Arora, this risk is manageable.

“While a lot of analysts caution about the company being over-leveraged being a risk factor for investors, the mix of brick and mortar as well as new age businesses gives the company an edge in terms of balancing risk,” he told Business Insider India.

Adani Enterprises is the flagship Adani Group company and has business interests ranging from mining, edible oil, solar, agro, defense and aerospace, among others. It has a market capitalization of ₹3.94 lakh crore and has almost doubled investor wealth in 2022.

NSE rebalances its indices on a regular basis – the rebalancing is done semi-annually, and several metrics like listing duration, market capitalization, liquidity, trading frequency, among other things.

According to an analysis by Motilal Oswal, the major driving factors behind the price action of stocks included in the Nifty 50 index are ETFs and index funds.

These funds generally peg their performance to the Nifty index. Therefore, any inclusion or exclusion of a stock from the Nifty 50 index will also have an impact on the holdings of that particular stock by these index funds.

However, over the longer term, the impact of such inclusions or exclusions from the index is limited, and other factors like business performance are more important.

SEE ALSO:

Recession in the US may cool off attrition in IT sector along with revenues

Explained: What is India Volatility Index or VIX, and why is it important now?

Gautam Adani is now the third richest person in the world, only behind Elon Musk and Jeff Bezos