Adani Enterprises, the flagship entity of Adani Group and an incubator focused on building diversified new businesses, will replace Shree Cements as the latest entrant to the Nifty50 Index from September 30.

This is the second Adani Group entity to join Nifty after Adani Ports & SEZ, although all seven companies are among India’s top 50 largest companies.

Even within the Adani group of companies, Adani Enterprises is the less visible sibling. However, it paid off just as much as its other siblings. Adani Enterprises is now the 11th largest listed company in India, with a solid performance of around 2,400% over the past three years, with a market capitalisation of Rs 4.1 lakh crore. The Nifty50 returned a relatively low 46% over the same period.

According to brokerage firm ICICI Securities, Adani Enterprises’ entry into Nifty will purchase shares worth Rs 1,760 crore only from fund managers of exchange-traded funds (ETFs) that track Nifty.

Moreover, this entry also leads other market participants to buy because they expect the stock to rise. The stock has risen 7% in the past month and is up 101% this year.

After adjustment, the price-to-earnings (PE) ratio of the Nifty50 index based on FY22 earnings will increase by 0.9% to 24.3 times. That’s because Adani Enterprises trades at a whopping 436 times earnings, while Shree Cement trades at 38 times earnings.

On the other hand, the FY22 return on equity (RoE) for the Nifty50 index will edge by three basis points to 14.69%.
Despite Adani Enterprises’ unreasonable valuation, investors and analysts have shown no reluctance to praise its business.

Gautam Adani, chairman and founder of Adani Group, said in a recent presentation that the group plans to invest $100 billion over the next decade, mostly in green energy. Most of this will come from Adani Enterprises through its subsidiary Adani New Industries Limited, which will handle its investments in renewable energy, green hydrogen and downstream products such as ammonia, urea and methanol.

In addition to this, Adani Enterprises is involved in managing airports, data centres, building roads and defence equipment. Analysts say all these businesses will gain traction and should grow in the short to medium term.
Adani Enterprises will also be included in the Nifty50 Shariah Index. Adani Total Gas is included in the Nifty100 Alpha 30 Index, and Adani Wilmar is included in the Nifty500 Shariah Index.

From entering the coveted 50-share club to exiting on March 27, 2020, Shree Cement returned just 21%. However, it’s worth noting that during this period, India’s economy was plunged by the pandemic, which has negatively affected many other stocks. Upon exit, UltraTech Cement will be Nifty’s only cement company.