Zip Co Ltd (ASX: ZIP) shares are on watch this morning.
This comes after the ASX buy now, pay later (BNPL) share was ousted from the S&P/ASX 200 Index (ASX: XJO).
Certainly, Zip is still very much trading on the ASX.
But every quarter S&P Dow Jones Indices reviews and rebalances the stocks within its various S&P/ASX Indices.
And as part of its September quarterly rebalance, Zip shares will no longer be part of the ASX 200 benchmark.
That's because after shares in the BNPL company fell by 80% in 2022, its market cap has fallen to some $595 million. That means it no longer ranks among the biggest 200 listed companies in Australia.
While there were no changes in the S&P/ASX 20 Index or S&P/ASX 50 Index, there were plenty of shakeups amongst the other popular indices.
Image source: Getty Images
Why does this matter?
There are certain advantages for stocks, like Zip shares, to be listed on the bigger indices such as the ASX 200.
Firstly, those stocks tend to get more analyst and media attention and, therefore, will be more likely to attract the attention of retail investors.
Secondly, many fund managers are restricted to trading only the bigger stocks, often limited to the ASX 200. So getting ousted from the index means those fund managers will no longer be able to invest in Zip and some may be selling their holdings today.
How have Zip shares been tracking longer term?
Like the rest of the BNPL sector, Zip shares have been pounded by rising inflation and interest rates, with the company also facing significant levels of bad debts from its customer base.
Zip shares were star performers, however, during the recovery year following the 2020 pandemic-fuelled market crash.
From 20 March 2020 through to 19 February 2021, the Zip share price rocketed an eye-popping 872%. Since that peak, however, the ASX BNPL share has lost 93% of its value.
We'll be watching closely to see how the company fares today.
