In this thread I'll explain how Nifty50 is reconstituted i.…

- Nifty50 is reconstituted 2 times every financial year ( September and March)
- Data from 1st Feb to 31st July decides which companies are are to included/excluded in September.
-Data from 1st Aug to 31st Jan decides which companies are are to included/excluded in March.

Besides some trivial requirement there are two major requirements for a company to be included :-

1) Impact cost :- It is the cost of buying and selling a stock with a wide spread between bid and ask price. High impact cost simply means that the stock is illiquid.

A stock which wants to get included in Nifty50 should not have an average impact cost of more than 0.50% on a pre-determined quantity. The data to compute this is not put out for public perusal so it is better to leave the calculation to the exchange.

2) Free-Float Market Cap :- It is the market value of Non-promoter shares. Further it excludes locked-in shares, Shares in employee welfare trust category, Cross holdings, Shares held by promoters through ADRs/GDRs etc

Average Free-float mcap of an aspiring company for the six month period either starting on 1st Feb or 1st Aug should be at least 1.5x Average Free-float mcap of the smallest constituent of Nifty50 for the same six month period.

Also, a maximum of 5 stocks can be included in any given calendar year.

Note :- One inclusion means one corresponding exclusion

I have computed the average Free-float mcap (1/2/22 to 16/5/22) of all the companies having a mcap > 30,000cr and not included in Nifty50.

Also, I have computed the average Free-float mcap (1/2/22 to 16/5/22) of all the companies in Nifty50.

I picked the smallest constituent of Nifty50 and calculated the minimum mcap threshold required for a company to be included.

Threshold (average free-float mcap) as on 16/05/2022 came out to be Rs.48,138cr

In Table 1 you will find the bottom 5 companies in Nifty50 in terms of average free-float mcap.

In Table 2 you will find the top 5 companies vying for an inclusion in the index. The more the average free-float mcap beyond the threshold, the more are its chances of getting included.

If things on 31st July 2022 stand as they did yesterday then there is a high chance that companies in table 2 will replace the companies in table 1 in Nifty50 from September end.

Assumptions

1) No significant change in shareholding pattern from 1/4/2022 to 16/5/2022

2) Average Impact cost of all the companies in Table 2 is well below 0.50%

- This data is as on 16/05/2022 and it keeps changing. However, i'll keep updating it every 1/2 weeks until 31st July ( which is the cut-off date )

- Notwithstanding the dynamic nature of this data, it can still be used by traders and index investors alike to spot trends.

- A lot of spadework goes into this preparation. Kindly show your support by retweeting and liking.

- Do give a follow for catching up with weekly updated tables.

Hope you will find this data useful.

EDIT : Forgot to add that inclusion in Nifty100 and derivative segment is also mandatory.

In this thread I'll explain how Nifty50 is reconstituted i.e how companies are included and excluded from the index.

Let's go 👇🧵

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In this thread I'll explain how Nifty50 is reconstituted i.e how companies are included and excluded from the index.Let's go 👇🧵

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In this thread I'll explain how Nifty50 is reconstituted i.e how companies are included and excluded from the index.

Let's go 👇🧵