HUL gets a Horlicks Boost; weightage in Nifty set to rise 25%

The allotment will not just increase HUL’s equity capital, but also increase percentage of public shareholding to 38 percent from the current 33 percent. At the current market price, the market capitalization of HUL is set to increase by Rs 43,0000 crore, or 25 percent.

Higher the public shareholding—also called free float in market parlance—greater the weightage of a stock in the index.

Index weightage matters because most active fund managers—local and global-- buy a stock in proportion to its weightage in a benchmark index. At times, this can set off a virtuous cycle wherein a higher weightage attracts more fund managers, driving the stock price higher, and further increasing weightage in the index, which then prompts newer money managers to buy the stock.

The 1.1 percentage point increase in Nifty weightage could put HUL ahead of TCS and bring it close on the heels of ICICI Bank.

HUL’s weightage in the Nifty has been steadily rising from 2.65 percent over the last year on a combination of safe haven buying, steady earnings growth, and the GSK Healthcare acquisition, which will add to its earnings per share.

HUL shares have rallied around 40 percent over the last one year, compared to a 27 percent decline in the Nifty over the last one year.