BSE could see $700 million passive inflows after Nifty 50 entry

BSE is set to attract approximately $700 million in passive investments following its inclusion in the Nifty 50 index. This surge in demand is anticipated to be primarily driven by the rebalancing of funds tracking the benchmark, with around $695 million earmarked for BSE from Nifty 50-linked funds around September 30. The brokerage projects this influx to involve roughly 18 million shares, representing about six times BSE's average daily trading volume.

Excluding BSE from other indices, Nuvama estimates the overall passive flow impact at a net $622 million, or 16.5 million shares, equivalent to 5.6 times its average daily trading volume. Nikunj Saraf, CEO of Choice Wealth, predicts the entry to trigger one-time passive buying between ₹6,500-7,000 crore, or about $740 million, based on an expected weight of 1.3-1.4 per cent for the index.

He anticipates the bulk of this buying to originate from domestic ETFs and index funds, with a smaller contribution from global Nifty 50 trackers. The immediate demand is primarily mechanical, but the impact of index membership is expected to extend beyond the rebalance as every additional rupee invested in Nifty 50 passive funds now benefits BSE.

Arihant Bardia, CIO and Founder of Valtrust, believes BSE's inclusion in the index will open up investment possibilities for a larger pool of institutional capital, potentially leading to greater institutional ownership, enhanced trading liquidity, expanded analyst coverage, and heightened global visibility. Bardia also suggests that this inclusion could contribute to the stock's long-term benefits, such as improved quality of ownership and a lower cost of capital.

However, analysts caution that much of the expected benefit may already be reflected in BSE's share price, which has surged ahead of its inclusion. The long-term sustainability of this valuation is projected to hinge on BSE's earnings and business performance, rather than solely on its index membership.