Mutual funds with the highest BSE exposure: Could we see a major reshuffle after NSE's listing? Experts weigh in

The upcoming listing of NSE on 24 September is set to bring a new listed stock into India's capital-market ecosystem. But for mutual fund investors, the listing could also have a knock-on effect on schemes that already hold its listed rival, BSE.

BSE is currently held across index funds, ETFs, sectoral/ thematic schemes, as well as diversified active equity funds. The key question for investors is whether fund portfolios could see a reshuffle once NSE starts trading.

Several funds tracking the Nifty Capital Markets index currently have sizeable allocations to BSE. The top holdings include:

However, the upcoming NSE listing does not automatically mean these Nifty-linked funds will replace BSE with NSE.

Harsh Vardhan Dawar, ACA, CFA, FRM, Founder - Wealth Cafe said, “NSE shares will list exclusively on BSE, not on its own exchange. So NSE won't slot into Nifty-branded indices in the usual way; it enters through BSE's own index family and global benchmarks instead. Over time, NSE should qualify and become a part of various BSE indices.”

The picture could be different for funds tracking BSE indices. Dawar noted that the BSE 150 MidCap or BSE 250 LargeCap indices could see changes depending on the exact free-float market capitalisation of NSE after listing.

“If NSE becomes eligible for a particular benchmark and enters it during a scheduled rebalancing, index funds tracking that benchmark will add NSE and adjust other constituents according to the index's methodology,” Adil Chacko, Executive Director, Anand Rathi Wealth Limited, noted.

Dawar pointed to mutual funds and ETFs that track newly listed IPOs. Funds such as Edelweiss Recently Listed IPO Fund and Mirae Asset BSE Select IPO ETF could see a portfolio reshuffle as NSE enters the listed universe.

BSE also features in several active financial-services and thematic funds. Some of the schemes with the highest BSE allocations are:

“Active mutual funds definitely add an allocation to NSE. They now have an alternative to BSE with respect to the exposure these funds have towards the capital-market infrastructure segment,” Dawar noted.

All thematic mutual funds that invest in the “Financial Services” sector will have a sizable allocation to NSE in their portfolio, he said.

BSE is also present in diversified active equity portfolios, but its percentage holding as a share of AUM is relatively low.

NSE will debut as either a dominant mid-cap or an entry-level large-cap entity. If it falls under the mid-cap category, there will be a major reshuffle, as NSE will have a significant impact on this space, Dawar added.

“Depending on their current allocation to BSE as a percentage of their total holdings, some may sell BSE to add NSE, while some may just add NSE to their existing BSE positions,” he mentioned.