Reliance Power to replace Dr Reddy's in Nifty
The composition of the Nifty, the NSE’s 50-stock benchmark index is set to undergo a change on 10-Sep-08, with Anil Ambani’s Reliance Power replacing pharma company, Dr. Reddy’s Laboratories. With this inclusion, there will be almost 8-9 power sector scrips on the Nifty now.
The move seems somewhat surprising, considering that Reliance Power was listed only in February this year, and is not even six months old in the market, notwithstanding it’s ownership credentials.
Secondly, there is a marked difference in both these scrips, in terms of their market cap as well as their financials. Reliance Power has a market cap of almost Rs.37,000 crore, while Dr.Reddy’s has a market cap of around Rs.10,000 crore. Reliance Power has yet to begin operations so has not generated any ‘real’ profits, other than those from treasury operations (FY08-Rs.94 crore), as compared to DRL’s Rs.475 crore in the same period.
In terms of effect on the Nifty, this will lead to a lower EPS and higher PE ratio, straining an index which is already reeling under declining liquidity as well as unfavourable fundamentals.
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