India’s NSE, one of two major stock exchanges, altered its equity index accounting for spun-off enterprises to reduce component turnover.
Reliance Industries Ltd (RELI.NS) wants to spin out Jio Financials from the merger of HDFC Ltd (HDFC.NS) and HDFC Bank (HDBK.NS).
The NSE announced the change late Wednesday in a circular for spin-offs approved by parent company shareholders after April 30.
Fixed-component indexes exclude newly listed businesses and replace a suitable stock.
However, freshly listed spun-off enterprises will be included in a relevant index at a constant price, which is the difference between the demerged firm’s closing price the day before the ex-demerger date and the price during a special pre-open session on that date.
The index will remove this object three sessions later. So, for example, if it meets the price range in two days, the NSE will postpone it for three days.
“As the size of the domestic passive indices has grown massively in past few years… We are also seeing big index constituents merging,” Nuvama Alternative & Quantitative Research noted.
“So it’s a good time to examine best practices that reduce churn and streamline corporate action.”
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