Industry Info

Vedanta to lose FTSE place to Royal Mail as miners' weight wanes

Vedanta Resources (VED.L) is set to drop out of Britain's blue-chip FTSE 100, ceding its place to recently privatised Royal Mail (RMG.L) and underlining the mining sector's waning influence in the index.

London-based Vedanta (VED.L) would be the third miner demoted from the index this year, after the recent deletions of Kazakh firms Kazakhmys (KAZ.L) and Eurasian Natural Resources Company ENRC.L.

The share of basic resources in the FTSE 100 has fallen to just 7.1 percent, from 9 percent in February. It is now just the sixth-biggest sector, having previously ranked third.

The change, due to be announced on Wednesday, should make the FTSE 100 less dependent on commodity prices and the health of the Chinese economy. Concern about Chinese demand for metals hit mining shares on Monday, weighing on the index .L.

Vedanta shares have plunged 24 percent this quarter, hit by weak metal prices, and the company is now ranked as the 135th biggest firm in the FTSE 350 by market cap.

The miners are generally losing their place to companies more focused on the UK economy. Postal and delivery company Royal Mail, which was only privatised in October, follows another recent debutant, budget carrier easyJet (EZJ.L).

Promotion to the FTSE 100 should see around 40 million Royal Mail shares change hands in trade worth nearly 250 million pounds in the fortnight around the quarterly reshuffle, analysts said.

The near doubling in Royal Mail's share price since its stock market debut has prompted debate over whether the IPO was priced too cheaply.

The 3.33 billion pounds implied market capitalisation of the group at its debut made it bigger than the three smallest companies in the FTSE 100, and by the close of its first day of trading, its market cap was equivalent to that of the FTSE's 75th biggest firm. It is now the 64th biggest company, based on Friday's closing prices.

Royal Mail is comfortably within the 90 biggest London-listed companies by market capitalisation, qualifying it for automatic promotion to the FTSE at this week's quarterly review.

Any company rising to 90th place or above is automatically added to the index, according to FTSE rules, while firms falling to 111th position or below are automatically deleted from the FTSE 100 and added to the mid-cap FTSE 250.

Promotion should fuel demand for Royal Mail shares from funds that track the FTSE 100 or use it as their benchmark, increasing volumes and volatility in the shares.

In a busy year for stock market flotations, Merlin Entertainments (MERL.L) and estate agent Foxtons (FOXT.L) could join the FTSE 250 .FTMC after their respective IPOs.

Final decisions on reshuffling the FTSE 100 and FTSE 250 will depend on Tuesday's closing prices, and are subject to approval from FTSE on Wednesday. The decision takes effect after the market closes on December 20.

Source: Reuters