City Watch: Budget airline easyJet could be set for promotion to the FTSE 100, says Brian Tora

Brian Tora of J M Finn & Co

Brian Tora of J M Finn & Co - Credit: Archant

TOMORROW sees the regular quarterly reshuffle in the FTSE 100 index.

Many people believe this index, arguably the best benchmark for judging the behaviour of the UK stock market, to comprise the 100 largest companies by market capitalisation listed in London. The rules for inclusion are actually more complicated than simply taking the top 100 as otherwise the index would be constantly changing.

To be automatically admitted to the Footsie, a company must rank 90 in size or higher, while below 111 companies drop out. Despite this considerable cushion, there have been times when the index has undergone significant and regular changes in its composition.

At the turn of the millennium, technology companies moved in and out of the index, according to the valuations accorded to them. It was a difficult time for investors. Life is a little calmer these days.

It does seem likely, though, that we will see at least one significant change in the composition of the index this week. Airline easyJet, which has seen its market capitalisation climb steadily to around £4billion, looks set to join the ranks of the UK’s leading index. It could be joined by the London Stock Exchange, which suggests two companies – Wood Group and Serco – could be relegated to the FTSE 250 Index.

A further change is on the cards later in the month when Glencore and Xstrata complete their merger, making room for another promotion. In a week when company news is beginning to slow, such diversions will hold investors’ interest. After all, admission to the FTSE 100 can create demand for the shares, just as relegation will force some holders to sell.

: : Brian Tora is an associate with investment managers JM Finn & Co.