Nifty rejig and the problem with index-based valuation

Changes to the benchmark Nifty50 index will be effective from 28 March. The reshuffle will alter the index’s price-to-earnings multiple and revive the debate over whether Nifty’s valuation is expensive or justified—particularly among fund managers who rely on index-based valuations for capital allocation to countries. Read this | Nifty reshuffle: Zomato and Jio Financial could edge out Britannia and BPCL in India's benchmark index The Nifty index includes companies with the highest free-float market capitalization—that is, market cap excluding the valuation of shares owned by promoters. Still, its 9MFY25 consolidated net profit stands at ₹1,296 crore, including ₹241 crore in dividend income from Reliance Industries Ltd. Read this | India needs stronger credit rating to join $29.5 tn global bond index: FTSE Russell This means that the incoming companies will contribute significantly less profit than those exiting, lowering Nifty’s EPS and making the index appear more expensive after the rejig. For instance, commodity companies Petrobras and Vale of Brazil are quoting at 4-6x P/E ratio based on 2025 estimates, which pulls down the overall valuation of Brazil’s Ibovespa index.