Why is Wipro being dumped from the Nifty?

Business

oi-Sunil

By Sunil Fernandes

Updated: Monday, April 1, 2013, 10:05 [IST]

In a strange decision that took market participants and analysts by surprise, those deciding on the Nifty constituents decided to replace Wipro with NMDC. This means that from April 1, 2013 Wipro would no longer be a part of the Nifty, which comprises 50 highly reputed stocks. Also read How to make more money from fixed deposits?

Wipro is among the top IT export earning companies and the decision to replace it with NMDC was quiet a surprise. In fact, the company has reported a consistent growth in profitability and revenues for several years now.

NMDC has been a laggard on the bourses for quiet sometime and only this week the stock hit a 52-week low. The rationale to replace Wipro with NMDC is difficult to understand.

What is worst is that the stock would also not form a part of the CNX IT index. Pertinently, the stock will remain a part of the BSE IT index.

It's difficult to understand the logic by the India Index Services & Products Ltd, an NSE-Crisil joint venture that maintains Nifty index, to remove Wipro from the Nifty. If HCL Tech can be a part of the Nifty, then why not Wipro? After all, the later is bigger in size than HCL.

In any case, the Wipro stock came in for some heavy selling pressure and was down 3 per cent in trade. There are reports that exchange traded funds, who are compelled to invest in Nifty stocks may now sell Wipro, as the stock will no longer be a part of the index.

Wipro recently underwent a restructuring and de-merged its lighting and IT services business. Azim Premji holds a 78 per cent stake in the company.

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