Saturday, June 27, 2009
The National Stock Exchange’s index NIFTY will shift to free float capitalisation from market capitalization method from June 26th 2009. Under this method, the weightage of each of the 50 component stocks in the index will be proportionate to the amount of free float.
Free float is the number of shares of company in public hands- stocks that is “floating free”, that which is not with promoters.
Share holdings held by investors that would not, in the normal course come into the open market for trading are treated as 'Controlling/ Strategic Holdings' and hence not included in free-float.
In specific, the following categories of holding are generally excluded from the definition of Free-float:
Holdings by founders/directors/ acquirers which has control element
Holdings by persons/ bodies with "Controlling Interest"
Government holding as promoter/acquirer
Holdings through the FDI Route
Strategic stakes by private corporate bodies/ individuals
Equity held by associate/group companies (cross-holdings)
Equity held by Employee Welfare Trusts
Locked-in shares and shares which would not be sold in the open market in normal course.
The remaining shareholders would fall under the Free-float category.
Free-float factor is a multiple with which the total market capitalization of a company is adjusted to arrive at the Free-float market capitalization. Once the Free-float of a company is determined, it is rounded-off to the higher multiple of 5 and each company is categorized into one of the 20 bands given below. A Free-float factor of say 0.55 means that only 55% of the market capitalization of the company will be considered for index calculation.
Globally, most indices are moving to this system as it is perceived to be more representative of market action. Reliance Industries retained its position as the top weighted stock due to its high free float component (50%), ONGC 3.5% from 8%, NTPC to 1.9% from 6%, Infosys 7% from 3.77%, ICICI Bank 6.45% from 2.96%, Larsen & Toubro 6.41% from 3.27%, SAIL 0.77% from 2.34%. All the fund managers tracking the NIFTY made changes accordingly.
Tuesday, June 16, 2009
India Index Services and Products (IISL), the NSE subsidiary which manages benchmark indices such as NIFTY came to know about difficulties to manage RIL weightage in index by fund managers. RIL is the largest market capitalization and with the highest weightage in Sensex & Nifty at 17.7% & 13.3% respectively.
The stock has being biggest contributor to the recent rally accounting to 861 pnts of the 3859 point Sensex up move. Fund managers both local & foreign, are taking a big hit in their portfolios for being significantly underweight on the counter, most of them are forced underweight by 500 bps. As per the SEBI rules local fund managers cannot bet more than 10% of their portfolio on a single stock. Foreign fund managers are bounded by mandates from their investor to stick to similar limits. Thus an average fund manager has lost nearly 2% returns on the underweight on just this stock. RIL’s size has begun to create problems for fund managers and is bound to increase. NSE is making the Nifty a free-float index which will add to its weight and also with completion of RPL merger will add up to 2% weightage. And it is possible that this bluechip giant may end up with a weight of 20%-plus on indices if it uses up its surplus cash for acquisitions. And suppose it does, India will have KOREA like situation where SAMSUNG INDUSTRIES accounts for a fifth or 20%-plus of the market. The most impact is that fund manager’s performance is benchmarked with Nifty and they cannot give more than 9.9% weightage to any stock, they have the risk of underperformance, and also none of the fund managers can take sells call, even if they have negative view on the stock because they are already underweight. A free market call on Reliance Industries is not possible and thus gives RIL a premium valuation.
In the recent rally, the stock outperformed the Sensex by huge margin. While the Sensex rose 47% between March 09 and May 13, the bluechip rose to 68%. This in turn, has taken its weightage up substantially on Nifty from 11% to 13.3% & on Sensex from 15.5% to 17.7%. In such situation, it depends on which way the index moves. If index is going up, then there is disadvantage. But when it fall the fund managers outperform because of under weight.
The only option is either to change the rules of 10% or follow MSCI and apply the 10/40 rule. This 10/40 methodology was introduced by MSCI indices in 2002. Accordingly the maximum weight of securities of a single issuer cannot exceed 10% of market value of the index, and the sum of the weights of all issuers representing more than 5% of the market value of the index cannot collectively exceed 40%.
Tuesday, June 9, 2009
Wind turbine maker Suzlon Energy said its stake in Germany based REpower Systems AG has increased to 90.72 per cent, with the acquisition of Martifer Group's 14.4 per cent stake in the company.
Suzlon has completed "the acquisition of Martifer Group's stake in REpower Systems, with a final payment of 87.6 million euro (Rs 574.48 crore)," Suzlon Energy said in a filing to the Bombay Stock Exchange.
With the conclusion of this transaction, Suzlon now holds approximately 90.72 per cent of shares and voting rights in REpower Systems, it further said.
Prior to this transaction, Portugal-based Martifer had held about 14.4 per cent stake in the Hamburg-based REpower Systems and Suzlon acquired it in a two part payment plan.
The purchase of Martifer's stake in REpower by Suzlon was agreed in February 2007 at the time of the joint bid by Suzlon and Martifer.
The Pune-headquartered firm had paid 65 million euro as the first tranche in December last year, hiking its stake in REpower to 73.1 per cent.
This is final tranche of the 270 million euro that Suzlon had agreed to pay to buy Martifer's 22.4 per cent stake in REpower Systems.
Today, shares of Suzlon Energy closed at Rs 125.70, up 2.95 per cent on the BSE ,and on NSE Rs.125.45, up 3 per cent with the volume of 79,853,861 shares traded on NSE and 24,097,763 shares on BSE.
SUZLONs London GDR scrip code(bloomberg)- SUEL:LI; Luxemburge GDR scrip code(bloomberg)- SUEL:LX.
Today REpower Systems AG is trading at 110.65 euros a share with a-Market Cap: 1,015.439 million Euros.
Share capital: 9,177,039
Last Dividend: 0.571 Regular Cash.
52-Wk High-(09/01/08): 240.370.
52-Wk Low-(10/27/08): 50.520.
Initial listing: March 26, 2002
Global leader VESTAS has 203,704,103 shares & Share size in DKK 1.00. Currently trading at 391.5 DKK.
Market Cap.: 79,750 MDKK
Market Cap.: 10,711 MEUR
1.00 DANISH KRONE (DKK) = 8.9584 INDIAN RUPEE (INR)