NSE announces revised treatment for demergers in Nifty equity indices

NSE Indices, a subsidiary of the NSE, on Wednesday, 26 April 2023, announced revision in the current treatment of `demergers` in Nifty equity indices. The changes are based on feedback from market participants.

Under the existing methodology, if a company demerges its business divisions into a separate entity, the demerged company is removed from the index and replaced with another eligible stock soon after the equity shareholders` approval to the scheme of arrangement for demerger of the company. If the index has a variable number of constituents, the demerged company is removed from the index without any replacement. If the demerged company is a constituent of indices on which futures and options are traded at NSE, changes are announced to the market participants four weeks prior to the index reconstitution date.

Under the revised methodology, if a special pre-open session (SPOS) is conducted by the exchange, the demerged company will remain in the index, and the newly spun off business/entity will be included in the index at a constant price. (The constant price is difference between the demerged company`s closing price on T-1 day and price derived during SPOS on the ex. demerger date).

The newly listed entity will be removed from the index after the end of the third day of its listing. If the newly listed entity hits the price band during the first two days, then the exclusion date will be deferred by three days. If it does not hit the price band on two consecutive days, it will be removed from the index after the third day of such observation. If it hits the price band again on the third day, it will be excluded without any further deferral.

If there is no special pre-open session, the demerged company will be removed from the index at the beginning of T-1 day, with a replacement for fixed number indices, and no replacement for variable number indices. This change aims to reduce churn in index constituents resulting from corporate actions involving demergers and is effective for schemes of arrangement approved by equity shareholders after 30 April 2023.

The change has come ahead of the shareholder approval for the demerger of Reliance Industries and Jio Financial Services, scheduled for 2 May 2023.

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