After the terms of the deal between HUL and GSK Consumer are put in place and shareholders of GSK are allotted HUL shares, the weightage of HUL is set to increase by 1.1 percentage points that shall be equivalent of a whopping 25%.
On Tuesday, HUL informed exchanges that it will allot 18.6 crore equity shares to GSK shareholders as per the agreed ratio of 439 HUL shares for every 100 GSK shares.
Interestingly, as many as 27 constituents of Nifty index share less than 1% weightage on the Nifty index.
Deal to result in increase in Public Shareholding/ Free float Of HUL
And with the allotment to GSK shareholders, public shareholding of HUL will increase to 38% and thus considering the current market price the market cap of the company will further increase by 25% or a staggering Rs. 43,000 crore.
And this directly relates to the weightage i.e more the m-cap, more is the weightage on the index.
How Increase in Index Weightage For Stock's Shareholders?
Generally, fund managers both domestic as well as foreign buy stake in the stock in proportion of its weightage on the index, this results in increased stake and which thus helps in pushing prices of the stock higher and consequently pushing weightage even higher.
Also, the increase in weightage propels new manger to take stake in the stock.
Over a period of one-year few of the favourables including buying in the stock due to its safe-haven appeal in distressed times, acquisition of GSK as well as steady earnings have pushed its weightage higher.
Result of Weightage Hike
In m-capitalisation terms, the weightage hike on the Nifty may make the stock of HUL surpass Tata Consultancy Services.