Nifty 50 rejig

The National Stock Exchange (NSE) announced that it would add Eicher Motors and Aurobindo Pharma to the Nifty 50 index from April 1. This follows heightened trading volumes in these counters over the past few months as investors swarmed to buy these shares to capture the upbeat momentum in their profits amid slow economic growth.
The combined weight of healthy growth and high RoE segments -such as consumer products, pharmaceuticals,automobiles-in the Nifty has nearly doubled to 27.3% compared with 14.7% five years ago. After the inclusion of Eicher Motors, AurobindoPharma and Tata Motors' DVR, this will increase to nearly 30%. Adding the IT sector weight to it, the high growth and high RoE companies will form about half of the full Nifty weight.
Some experts believe inclusion of high-growth, high-RoE segments will prevent the index from being an accurate barometer of the broader economic health. The lower weight of cyclical stocks means the index will fail to capture the uptick in these stocks when global liquidity starts chasing beaten-down value stocks.Also, the index's ability to capture the stress in certain sectors, such as banking, is diminishing.
The latest inclusions are expected to improve the average RoE of the Nifty, which has been at the near decade-low level due to the falling pricing power of companies.

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