Know About Changes Made to Key Stock Market Indices by NSE

In its recent circular, dated 25 February 2025, the National Stock Exchange (NSE) made substantial benchmark index updates that brought crucial modifications that might affect market performances. Nifty50 and other major indices are also going through the change as part of NSE's semi-annual review process. Let us look at the changes that are going to happen.

Changes in Nifty 50

Companies being included:

• Jio Financial Services: A newly listed financial services arm of Reliance Industries, focusing on lending, insurance, and digital financial solutions. Its inclusion reflects the growing importance of fintech and Reliance’s expansion into BFSI (Banking, Financial Services, and Insurance).
• Zomato: A leading online food delivery and restaurant aggregator platform in India. The company has gained traction with increasing digital adoption, improving profitability, and a strong market presence, making it a new entrant in NIFTY 50.

Companies being excluded:

• Bharat Petroleum Corporation Ltd: A state-owned oil and gas company engaged in refining, marketing, and distributing petroleum products. It is one of India’s largest oil companies but may be facing index exclusion due to market performance or sectoral shifts.
• Britannia Industries: A leading FMCG company known for its biscuits, dairy products, and bakery goods. While Britannia remains a strong consumer brand, its exclusion could be linked to relative underperformance or weight adjustments in the index.

Changes in Nifty Next 50

Companies Being Included

• Bajaj Housing Finance Ltd: A subsidiary of Bajaj Finance focused on home loans and real estate financing that got listed recently.
• Bharat Petroleum Corporation Ltd: A major state-run oil refining and marketing company.
• Britannia Industries Ltd: A leading FMCG company known for its biscuits, dairy, and bakery products.
• CG Power and Industrial Solutions Ltd: A manufacturer of electrical equipment, transformers, and automation solutions.
• Hyundai Motor India: A subsidiary of Hyundai, among India's largest car manufacturers.
• Indian Hotels Co. Ltd: A Tata Group company operating luxury and budget hotels under the Taj brand.
• Swiggy Ltd: A leading online food delivery and quick commerce platform in India.

Companies Being Excluded

• Adani Total Gas Ltd: A subsidiary of Adani Group engaged in city gas distribution.
• Bharat Heavy Electricals Ltd: A leading public sector company specializing in power generation equipment.
• Indian Railway Catering and Tourism Corporation Ltd. (IRCTC): A key player in Indian Railways’ catering, tourism, and online ticketing services.
• Jio Financial Services Ltd: A financial services arm of Reliance Industries, recently gaining traction in BFSI.
• NHPC Ltd: A government-owned hydropower generation company.
• Union Bank of India: A major public sector bank in India.
• Zomato Ltd: A popular online food delivery and restaurant aggregator platform.

Changes in NIFTY Financial Services

Company Being Included:

• Jio Financial Services: The financial services arm of Reliance Industries, focusing on lending, insurance, and fintech solutions.

Company Being Excluded

• Multi Commodity Exchange of India: India's leading commodity derivatives exchange.

Changes in Nifty Midcap

Companies Being Included

• Bharat Heavy Electricals: A major public sector enterprise engaged in power generation equipment manufacturing.
• BSE: Asia’s oldest stock exchange and a key player in India’s capital markets.
• Marico: A consumer goods company known for brands like Parachute, Saffola, and Livon.
• Max Healthcare Institute: A leading healthcare provider in India with a network of hospitals.
• Oracle Financial Services Software: A subsidiary of Oracle Corporation, providing IT solutions for banking and financial services.
• PB Fintech: The parent company of PolicyBazaar and Paisabazaar, leading online platforms for insurance and financial products.
• Yes Bank: A private sector bank that has undergone restructuring and is focusing on rebuilding its financial strength.

Companies Being Excluded

• AU Small Finance Bank: A small finance bank providing retail and SME banking services.
• Container Corporation of India: A logistics and freight transport company specializing in containerized cargo.
• Federal Bank: A private sector bank with a strong presence in retail and corporate banking.
• IDFC First Bank: A financial institution focused on retail banking and infrastructure financing.
• Indian Hotels Co.: A Tata Group company operating luxury and budget hotels under the Taj brand.
• MRF: India’s largest tire manufacturer with a significant global footprint.

Why Does NSE Make Semi-Annual Changes to Indices?

The NSE makes semi-annually rebalancing indices like NIFTY 50, NIFTY Next 50, and NIFTY Midcap Select to ensure that they accurately represent the market and reflect the most relevant companies. These changes help in:

• Market Representation: Ensuring indices include the most liquid and high-performing stocks.
• Sectoral Balance: Maintaining proper sector representation in indices.
• Investor Confidence: Ensuring indices track strong and stable companies, making them attractive for index funds and ETFs.
• Liquidity and Tradability: Replacing stocks with lower trading volumes with more actively traded stocks.
• Performance Alignment: Removing underperforming stocks and adding companies showing growth and stability.

Eligibility Criteria for Selection of Constituent Stocks

To give you some idea of how stocks are picked in an index, we share with you the criteria for selection for the Nifty50 index:

• Market impact cost is the best measure of the liquidity of a stock. It accurately reflects the costs faced when actually trading an index. For a stock to qualify for possible inclusion into the Nifty 50, have traded at an average impact cost of 0.50% or less during the last six months for 90% of the observations, for the basket size of Rs. 100 Million.
• Companies that are allowed to trade in the F&O segment are only eligible to be constituents of the index.
• The Company should have a minimum listing history of 1 month as of the cutoff date.

Impact of NSE Index Rebalancing on Investors

NSE's semi-annual rebalancing has both opportunities and challenges for investors, particularly those who invest in index funds, ETFs, and actively trade stocks. Let us look at both the positives and challenges for investors.

Positives for Investors

• Better Quality Stocks in Indices: Weak or underperforming stocks are removed, and stronger stocks with better liquidity and fundamentals are added. It ensures that indices remain representative of the best-performing companies.
• Increased Investment in Newly Added Stocks: When a stock is added to an index like NIFTY 50, mutual funds and ETFs that track the index are forced to buy the stock, leading to short-term price appreciation. Retail investors can benefit by investing in such stocks before inclusion.
• Higher Liquidity & Lower Risk in Index Funds: Rebalancing ensures that index funds and ETFs remain liquid and stable by holding actively traded stocks. Investors in passive funds benefit from lower tracking errors and better index representation.
• Sectoral Balance and Market Reflection: Changes in index composition help maintain sectoral balance and ensure that indices accurately reflect economic trends. Investors in index-based funds get exposure to the most relevant and performing sectors.

Challenges for Investors

• Forced Selling Pressure on Excluded Stocks: Stocks removed from indices face high selling pressure, especially from index funds and ETFs, leading to price declines. Investors holding these stocks may see short-term losses.
• Increased Volatility in the Short Term: Stocks being added and removed experience high volatility due to sudden demand/supply shifts. Traders may find opportunities, but long-term investors may face short-term fluctuations.
• Passive Investors Have No Control Over Changes: Investors in index funds and ETFs have no control over which stocks enter or exit. If an investor prefers a particular company that gets removed, they may need to rebalance their portfolio manually.
• Sector Overconcentration Risk: If multiple companies from the same sector are added or removed, it can lead to sectoral imbalances. For example, more financial stocks in NIFTY 50 may increase exposure to one sector, raising risk if that sector underperforms.

Before you go

The semi-annual rebalancing of NSE indices is essential in maintaining market relevance, liquidity, and sectoral balance. By replacing weaker stocks with stronger, more liquid ones, the process ensures that indices like NIFTY 50 and NIFTY Next 50 accurately reflect India's evolving stock market.

While this benefits passive investors through improved index quality, it also brings short-term volatility and forced buying/selling pressures that active investors must navigate. Understanding these changes allows investors to adapt their strategies, seize opportunities in newly included stocks, and manage risks associated with exclusions. Ultimately, NSE's periodic reshuffling enhances market efficiency and strengthens India’s financial ecosystem.

For more details: NSE Circular