Adani-hit Nifty ETFs unlikely to lose incremental flows to other indices

Advisors remain in favour of Nifty despite its recent underperformance to the Sensex

The presence of two Adani group stocks in the Nifty 50 index has weighed on its performance, leading to a lag vis-a-vis the Sensex, which has no presence of stocks from the crisis-hit group.

The Nifty is down nearly 1.5 per cent in the last seven trading sessions. The Sensex, on the other hand, is down just 0.2 per cent during this period. The two headline indices generally move neck-and-neck due to similar heavyweight stocks.

Adani Enterprises and Adani Ports and SEZ are part of the Nifty 50 index but have a combined weightage of less than 2 per cent.

The divergence in performance of the two indices is unlikely to affect incremental inflows into index funds and exchange traded funds (ETFs) benchmarked to the Nifty 50 index, which is more popular among investors than Sensex schemes.

Data from Value Research indicates that Nifty 50 passive funds haven't seen major redemptions in the last few days. The assets under management (AUM) of top Nifty 50 passive funds is down 1.4 per cent on an average, which is close to the market correction. AUM is subject to both market movement and inflow and outflow of investments. In the case of top Sensex funds, the AUM is down one per cent.

Investment advisors and MF distributors say they still prefer the more diversified 50-stock Nifty 50 over Sensex for investment due to greater diversification.

"While the diversification has gone against Nifty 50 this time, I see no reason to opt for a more concentrated Sensex. For a long-term investor, there is no need to change index strategy based on a stock specific issue," said Vishal Dhawan, founder, Plan Ahead Wealth Advisors.

"Index investors should let the market dynamics do the work. In the past too, Nifty constituents have gone through rough patches but its performance remains in line with the overall economic growth," said Rushabh Desai, founder, Rupee With Rushabh Investment Services.

Bangalore-based analyst Rahul Jain said the bigger impact could be on the Nifty Next50, which has five Adani group companies. The Nifty 50 and the Nifty Next 50 indices largely make up for top 100 listed companies.

"The Nifty Next 50 has taken a bigger hit, leading to concerns. Although we are not yet recommending clients to redeem investments in the index," said Jain, senior vice-president-research, International Money Matters.

Data shows that Nifty Next 50 is down 8 per cent in the last seven trading sessions. The AUM of the two largest Nifty Next 50 index funds are down about seven per cent. The lower drawdown in AUM may either be a result of tracking error or investments being higher than redemptions.

AEL to be dropped from sustainability indices
 

S&P Dow Jones has said it will remove Adani Group's flagship firm Adani Enterprises from sustainability indices with effect from February 7 following a media and stakeholder analysis triggered by allegations of accounting fraud. The move comes amid stock exchanges BSE and NSE putting three Adani Group companies — Adani Enterprises, Adani Ports and Special Economic Zone, and Ambuja Cements — under their short-term additional surveillance measure (ASM).