We may only be half-way through the third quarter, but already it looks as though there will be quite a few changes to the benchmark FTSE 100 index when the topic comes up for review next month.

Promotion to, and demotion from, the index can have a big effect on the share prices of the firms concerned as tracker funds with many billions of pounds of assets need to re-jig their holdings to take account of the changes.

PHARMACEUTICALS IN THE ASCENDANCY

At the moment the automatic cut-off for demotion from the FTSE 100 to the FTSE 250 is a market cap of around £3.1 billion, while the automatic level for promotion to the large-cap index is around £4.3 billion.

That means there are four stocks in the FTSE 250 which are eligible for automatic inclusion in the FTSE 100 in October, assuming they can maintain their current valuation.

Two of these are veterinary drug maker Dechra Pharmaceuticals (DPH), whose shares have gained 45% this year, and generic drug maker Hikma Pharmaceuticals (HIK), whose shares are up 33% this year.

Dechra accepted an all-cash £4.5 billion takeover from private equity firm EQT on 2 June and the deal is expected to close later in 2023 or early 2024.

MARKS SPARKS

The other two stocks looking at automatic promotion are distribution group Diploma (DPLM), whose shares are up 12% this year, and high street retail royalty Marks & Spencer (MKS), whose shares have rallied a remarkable 76% so far this year.

Last week, the firm revealed sales in the 19 weeks to mid-August were above expectations and it would report a ‘significant improvement’ in first-half earnings when it reports its interim results in November.

Marks & Spencer shares surge to one-year high on latest profit upgrade surprise

Marks & Spencer shares dropped out of the FTSE 100 for the first time in the company’s history in September 2019 and it has been a long road back.  

ON THE LOSING TEAM

To make way for this foursome, in descending order of market cap, the stocks which look most likely to be demoted to the mid-cap FTSE 250 index as it stands are housebuilder Persimmon (PSN), whose shares are down 18% this year; components maker RS Group (RS1), whose shares are also down 18% year-to-date; materials firm Johnson Matthey (JMAT), whose shares have slumped more than 25% this year; and fund management group abrdn (ABDN), whose shares are down 14%.

It is a close race at the bottom of the big-cap index, though, with insurers Beazley (BEZ) and Hiscox (HSX), and clothing conglomerate Frasers (FRAS) all jockeying for position to try and avoid relegation.

If Beazley or Frasers were demoted it would mark a dramatic about-turn as both stocks were only promoted towards the end of last year.

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