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    NSE's unit proposes stock exclusion from index on merger ex-date

    Synopsis

    Analysts had estimated that as per current rules, HDFC would have been excluded from the Nifty in December, which could see an outflow of around $1.3-1.5 billion from the passive funds. If NSEIL’s proposals are accepted, HDFC will be excluded on the ex-date, which will likely happen mid-next year.

    NSE's unit proposes stock exclusion from index on merger ex-dateAgencies

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    NSE Indices, a subsidiary of the National Stock Exchange, has proposed to exclude or include a company from or into the indices closer to the event. The plan, if approved, may avert sharp swings in shares prices of companies that are in the process of merger or demerger on account of forced selling and purchases by passive funds that track these indices. The move comes ahead of the HDFC-HDFC Bank merger.

    NSE Indices has sought market participants' feedback on the ‘treatment of merger and demerger’ in the Nifty indices by November 2. NSEIL has proposed to make changes to the indices effective from the ex-date of the merger or demerger instead of excluding the stock within four weeks of the shareholder's approval for such a corporate event, said a release on Tuesday. Ex-date is the cut-off date on which investors do not get the benefit of a company’s action.

    Analysts had estimated that as per current rules, HDFC would have been excluded from the Nifty in December, which could see an outflow of around $1.3-1.5 billion from the passive funds. If NSEIL’s proposals are accepted, HDFC will be excluded on the ex-date, which will likely happen mid-next year.

    According to the NSEIL, if a merger happens between companies that are part of an index, the exclusion of a company ahead of its ex-date would trigger selling by passive funds to rebalance the weights of the index constituents. Later, when the weightage of the merged entity changes, post-merger, the funds will have to buy the stock again at the prevailing market price.

    “Companies with large market capitalisation may get excluded and may again become eligible for inclusion in subsequent reviews, thereby increasing churn in the index and consequently in funds tracking the such index,” NSEIL said.

    As per the new proposal, a company’s replacement will be made on the ex-merger date with eligible stock in case the index has a fixed number of constituents. No replacement will be made in case of a variable number of constituents, the NSEIL release said.

    The NSEIL has proposed to retain the company in an index in the event of a demerger. The weightage of the company on the index would be adjusted before the market opening of the ex-date of the demerger based on the price discovered during the special trading session for the demerged company.



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    (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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