The quarterly rebalancing for indices Nifty50, Nifty Bank, and Nifty CPSE will be done on 30 December 2021. However, the changes will come into effect from 31 December. Funds tracking these indices would also realign their portfolio according to these changes. Such realignment would trigger inflows and outflows in stocks.
Significance of rebalancing
Rebalancing and changes done to an index help market participants understand the direction of institutional flows.
Institutional investors’ buying and selling of a particular stock indicate their sentiment for the stock.
“The capping factor of stocks in all the Nifty Indices is realigned upon a change in equity, investible weighted factor (IWF), replacement of scrips in the index, periodic rebalancing and on a quarterly basis on the last trading day of March, June, September and December. This is done by taking into account closing prices as on a T-3 basis, where T day is the last trading day of March, June, September and December,” Abhilash Pagaria of Edelweiss Alternative Research said in a note.
Inflows and outflows in stocks
Edelweiss Alternative Research has given a list of stocks that would be impacted in the last 45 minutes of trade on Thursday.
In the case of Nifty 50, constituents Tata Steel, Cipla, IndusInd Bank, and Reliance Industries could see inflows of $ 1 to 148 mn., with RIL witnessing the highest inflow. In comparison, ITC, ICICI Bank, HDFC Bank, Infosys, Kotak Mahindra Bank, Housing Development Finance Corporation, Tata Consultancy Services, Larsen & Toubro, Hindustan Unilever, and Grasim Industries are expected to see outflows of $ 5-18 mn.
HDFC Bank, in particular, will see outflows of $ 15 mn. in Nifty 50 but inflows of $ 17 mn. in Nifty Bank. In contrast, ICICI Bank and Kotak Mahindra Bank will be collectively seen selling in Nifty 50 and Nifty Bank.
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