REC’s exit from Nifty CPSE doesn’t affect fundamentals, but is a worry

After REC Ltd was dumped rather unceremoniously from the Nifty CPSE index, the stock took a sharp knock. The company’s shares are down 14% since the news of its exit from the index on 8 July.

As index changes go, underlying stocks that are excluded tend to swing wildly. REC’s exit from the Nifty CPSE (central public sector enterprises) has meant that exchange-traded funds (ETFs) holding this stock have to sell these shares in the market.

The CPSE ETF holds about 6.6% in REC, which was worth about ₹660 crore in June 2019. Although the changes come into effect from 15 July, the stock has reacted early to the news. While any changes in indices are not good for the stocks, this hardly has anything to do with the companies’ performance.