In the next few days, British American Tobacco Plc. might sell 4% of ITC Ltd., raising its free-float weight factor and requiring index funds to reallocate assets in their portfolios. BAT will reduce its ownership of ITC in the coming days from 29% to 25%, per a Bloomberg report. At the current market prices, the stake sale will be worth slightly more than Rs 20,400 crore, or $2.46 billion.
According to Bloomberg, BAT intends to complete the stake sale by the end of the month in order to record the proceeds in the current quarter, which ends in March 2024. 49.90 crore shares, or 4% of the total, will be sold in the market over the course of the next few weeks. As a result, index funds would want to purchase the stock in order to rebalance their holdings.
As of right now, ITC’s free-float weight factor on the NSE is 0.71. When BAT’s stake sale comes to an end, this will ultimately rise to 0.75. All passive funds will need to recalculate their portfolios in light of this change in free float to make sure the weights match the weights of the indices.
As of right now, ITC weighs 3.71% in the Nifty 50 Index. Following the share sale, ITC’s weight in the Nifty Index will increase to 3.94%. Therefore, index funds are needed to purchase ITC shares.
Therefore, even though there might be concern about the stock’s short-term supply, index funds’ demand will be sufficient to align their portfolio before the annual account closure on March 29, 2024.
There are twenty-three index funds and exchange-traded funds based on the Nifty 50 and Nifty 100. They’ll need all of these money to keep their portfolio in balance. Not to add, every active mutual fund portfolio contains ITC.
