NSE Mumbai: NSE Indices, a subsidiary of NSE, has announced the revisions in the treatment of demerger in Nifty equity indices.
"Based on the study of global practices, and feedback received from the market participants, the Index Maintenance Sub-Committee (equity) of NSE Indices has decided to make revisions in the methodology of Nifty equity indices for treatment of demergers," said NSE in a media release.
Revised methodology
If Special Pre-Open session (SPOS) is conducted by Exchange:
The Demerged company will be retained in the index.
Additionally, the spun off business/ entity shall be included in the index at constant price (which is difference between the demerged company’s closing price on T-1 day wherein T is Ex.
Demerger date and price derived during Special Pre-Open session (SPOS) on the Ex. Demerger date.
The spun off business/ entity which is the newly listed entity shall be removed from the index after end of day (EOD) on third day of its listing.
In case, during the first 2 days of these 3 days, if the spun off business/ entity hits the price band on both days, then the exclusion date shall be deferred by another 3 days.
After observing two consecutive days of the spun off business/ entity not hitting the price band, such spun off business/entity shall be removed after the third trading day of such observation.
If on such 3rd day spun off business/ entity again hits the price band, exclusion of such stock shall not be deferred anymore.
If Special Pre-Open session is not conducted by Exchange, the Demerged company shall be removed from the index at the beginning of T-1 day (close of Ex. – 2) where T day would be the Ex. date for demerger of stock by making a suitable replacement in case of indices with fixed number of companies.
No replacement (inclusion) will be made in case of indices with variable number of companies.
The above change is expected to help in reducing churn in index constituents resulting from corporate action involving demergers.
The change will be applicable to the scheme of arrangement of all companies involving demerger which may be approved by equity shareholders of respective companies on or after April 30, 2023.
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