Zomato, Jio Financial Services’ entry to make Nifty 50 more expensive. Here’s why

The entry of new-age tech stocks Zomato and Jio Financial Services into the benchmark Nifty 50 is expected to expand the index’s valuation by 2.5%.

Zomato and Jio Financial Services will enter the Indian stock market benchmark index Nifty 50 from March 28, 2025, as announced by the National Stock Exchange (NSE), in the upcoming semi-annual indices reshuffle.

The food delivery giant Zomato and Reliance Industries’ non-banking financial arm, Jio Financial Services Ltd, will replace state-run oil refiner Bharat Petroleum Corporation Ltd. (BPCL) and FMCG major Britannia Industries in the Nifty 50 index.

Nifty 50 Valuations to Inflate

BPCL and Britannia Industries with trailing price-to-earnings (P/E) ratio of 8x and ~57x, respectively, will be replaced by Zomato and Jio Financial Services with trailing P/E of ~320x and ~96x, respectively, by end of March 2025 within the Nifty 50 index.

Due to this shift Nifty 50 P/E could inflate by 2.5% on a trailing basis from 22.1x to 22.6x, according to estimates by ICICI Securities.

Since 2018, new-age stocks related to areas such as insurance, fintech, organised retail along with consumer and healthcare companies have entered Nifty 50 at the cost of old economy stocks from sectors such as oil & gas, industrials and traditional lenders.

“The trend is peculiar given that the divergence of P/E of incoming (median P/E of ~60x) and outgoing stocks (median P/E of ~10x) at the time of index changes was very high and above normal levels. Hence, on like-to-like basis, NIFTY50 index would have appeared 8-10% cheaper with a trailing P/E of 20x and FY26 P/E of 17.9x, assuming 2018 index constituents had not changed,” said Vinod Karki, Equity Strategist at ICICI Securities.

Inflows and Outflows

The upcoming changes in the Nifty 50 index are expected to result in significant fund flows from passive investors.

The brokerage firm estimates buying worth ₹5,900 crore (~3x ADTO) for Zomato and ₹3,000 crore (~5x ADTO) for Jio Financial Services while selling worth ₹2,300 crore (~11x ADTO) for Britannia Industries and ₹1,900 crore (~6x ADTO) for BPCL from Nifty 50 ETF funds, Karki added.

Financials, Energy Stocks Still Cheap

The financials and energy sectors (excluding Reliance Industries) account for a significant 52% share of the aggregate profit pool of the Nifty 50 index. According to the brokerage firm, despite the overall rise in Nifty valuations, this profit pool has witnessed a 40% decline in valuation since 2018, with the price-to-earnings (P/E) ratio contracting from 26x to 16x, while the price-to-book (P/B) ratio has remained stable at approximately 2.6x.

Meanwhile, the largest expansion in P/E multiples since 2018 has been observed in the IT, consumer discretionary, and industrial sectors.

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