The Nifty 50 index, a barometer of India’s economy, is updated twice yearly, in March and September. This event keeps the index reflective of the ever-changing Indian economy to ensure it represents the top 50 companies by market capitalization. With the September 2024 rejig on the horizon, Divi’s Lab finds itself amidst speculation of a potential exclusion. Can it happen? Let’s find out in this article.
About the Company
Divi’s Laboratories is an Indian pharmaceutical company headquartered in Hyderabad. It was founded in 1990 as Divi’s Research Centre. The company initially focused on developing commercial processes for manufacturing active pharmaceutical ingredients (APIs) and intermediates. In 1994, it changed its name to Divi’s Laboratories Limited.
The company has a decent global market share in generic APIs such as naproxen, dextromethorphan, and gabapentin. It also produces pregabalin and methylamine. In addition to these, Divi’s Lab offers custom synthesis services.
Reason for Divi’s Lab Replacement in Nifty 50
In the upcoming September 2024 Nifty 50 index reshuffle, Bharat Electronics Limited (BEL) and Trent Ltd are expected to replace Divi’s Laboratories and LTI Mindtree. This change is based on an analysis by Nuvama Alternative Research.
The expected inflow of BEL is $361 million, while for Trent, the figure is $429 million. Meanwhile, the expected outflow of Divi’s Laboratories is $213 million.
The decision reflects market dynamics and performance trends among these companies. BEL has delivered strong returns in 2024, while Trent has seen significant appreciation over the past year.
Criteria for Inclusion in the Nifty 50 Index
The Nifty 50 index has specific eligibility criteria for stock inclusion. Here are the key points:
- Listing History: Stocks must have a minimum listing history of 1 calendar month as of the cut-off date. Previously, the requirement was three months.
- Impact Cost: For the last six months, at least 90% of the trades should have had an impact cost of 0.50% or less, based on a basket size of Rs. 10 crores.
- Market Capitalization and Turnover: The Nifty Midcap 50 and Nifty Smallcap 50 indices follow similar criteria based on average daily full market capitalization and turnover.
How does this Reshuffle Affect Investors?
The Nifty 50 reshuffle can impact investors holding Divis Lab share price in several ways:
- Sector Exposure: The reshuffle affects sector weightings. BEL (defense) and Trent (retail) represent sectors different from Divi’s Labs (pharmaceuticals) and LTIMindtree (IT services). Investors should assess their sector allocations accordingly.
- Volatility: Stock prices of companies entering or exiting an index can experience volatility. You should be prepared for short-term fluctuations.
- Investment Strategies: If you are an active investor, you may capitalize on this event by adjusting your positions based on expectations. Passive investors (index fund holders) will automatically mirror the index changes.
- Market Sentiment: The reshuffle reflects market sentiment about company performance. Investors should consider this sentiment while making decisions.
Should Investors Still Hold On to Divi’s Labs?
To understand the future performance of Divis Lab share chart, consider the following:
- Divi’s Labs reported robust Q4FY24 results, with a 67.6% increase in net profit to Rs 538 crore compared to the previous year. The company’s revenue from operations rose by 18% in the same quarter, reaching Rs 2,303 crore. Consistent financial growth demonstrates stability and attractiveness to investors.
- Earnings before interest, tax, depreciation, and amortization (EBITDA) surged by 50.1% to Rs 731 crore in Q4FY24, compared to Rs 487 crore in the previous year. The improved margin of 32% (up from 25% in the year-ago period) indicates efficient cost management.
- The company recommended a final dividend of 1,500% (Rs 30 per equity share) for fiscal year 2023-24, subject to shareholder approval. Dividends attract investors and enhance stock stability.
While exclusion may have an impact on Divis Lab, the company’s fundamentals and innovation can yield long-term value.
Conclusion
The Nifty 50 rejig in September 2024 might or might not impact Divi’s Lab’s inclusion. Regardless of the outcome, investors should conduct thorough research, analyze the company’s fundamentals, and consider their risk tolerance before making investment decisions.
