JFS Nifty exclusion: HDFC Bank, RIL, Infosys, ICICI Bank & other index stocks may see inflows

The exclusion of shares of Jio Financial Services (JFS) from Nifty will likely lead to passive inflows for Nifty heavyweights such as HDFC Bank, Reliance Industries (RIL), ICICI Bank, Infosys and ITC, among others, due to increased index weightages.

While Jio Financial could see passive outflows to the tune of $324 million, HDFC Bank could see inflows amounting $44 million, Abhilash Pagaria of Nuvama Alternative & Quantitative Research suggested adding that the overall impact of JFS exclusion would be neutral, as it would be evenly distributed among 50 Nifty stocks based on free-float.

As per Nuvama's estimates, RIL could see $31 million inflows, followed by ICICI Bank ($26 million), Infosys ($20 million), ITC ($15 million) and TCS ($13 million). Larsen & Toubro and Axis Bank are also expected to see inflows in excess of $10 million.

JFS shares were trading 2.6 per cent lower at Rs 248.40 on NSE. The stock will be excluded from Nifty and other NSE indices from September 7. The stock did not hit the price band on two consecutive trading days and, therefore, the index maintenance sub-committee of NSE indices decided to remove it from various indices effective Thursday. To recall, the JFS stock was excluded from Sensex and other BSE indices from September 1.

Jio Financial was a constituent of indices such as Nifty 100, Nifty 200, Nifty 500, Nifty Commodities, Nifty Energy, and Nifty Infrastructure, among others. NSE indices had announced inclusion of Jio Financial (spun-off entity) on account of demerger of financial services business from Reliance Industries Ltd (RIL) effective from July 20. The stock got listed at Rs 265 apiece on August 21, a 1.18 per cent premium over its discovered price of Rs 261.85 apiece on July 20. It has about 1 per cent weight in Nifty.

IIFL Securities in an August note said JFS may target consumer durable loans, unsecured personal and small-ticket merchant loans by leveraging Reliance Retail and Jio’s physical and digital distribution channels. The domestic brokerage expects the scale-up to be gradual, as JFS builds out physical and collections infra - peers have 800-4,000 branches and 4,000-66,000 employees

"FinTech lenders that typically lack physical and collections infrastructure have AQ challenges, which are reflected not only in higher delinquencies but also materially lower roll-back rates. Over the medium term, we expect JFS to add larger ticket size and secured consumer, merchant and MSME loans. These segments have a market size of Rs17trn, out of the Rs71trn of total retail and SME lending," it said.

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