Rolls-Royce exits FTSE 100 as New Economy stages comeback

Rolls-Royce, the aero engine maker, and Corus, the former British Steel, will be ejected from the FTSE 100 index of leading shares today, with three other Old Economy stocks. They are being usurped by New Economy companies including Baltimore Technologies, the returning hi-tech wonderstock.

Rolls-Royce, the aero engine maker, and Corus, the former British Steel, will be ejected from the FTSE 100 index of leading shares today, with three other Old Economy stocks. They are being usurped by New Economy companies including Baltimore Technologies, the returning hi-tech wonderstock.

The committee of FTSE International, which compiles the indices, meets this afternoon to adjudicate on the companies joining and leaving the blue-chip index. Its decision is based on ranking companies by market capitalisation using yesterday's closing share prices.

On that basis, HSBC, the investment bank, last night forecast that Rolls-Royce and Corus would leave the FTSE 100. It will be only the second time Rolls-Royce has been ousted from the index, having dropped out previously in 1994. The group's shares dived last month following a profits warning.

Also being demoted are Scottish & Newcastle, the brewer, Hanson, the construction group, and Associated British Foods. All three were ejected in March when the index saw its biggest ever shake-up and 18 companies changed places following the rise of hi-tech stocks. They were readmitted in June following a downturn in tech stocks, triggered by fears of rising interest rates and a fall in the shares of Microsoft, the software giant.

Baltimore Technologies, the internet security company, is the only company ejected in June which is now regaining its place.

Making their FTSE 100 debut are Electrocomponents, the electronic equipment distributor behind the RS brand, and Spirent, the engineer that makes components for internet infrastructure. Spirent changed its name from Bowthorpe in May to reflect its New Economy focus.

The changes in the FTSE 100 line-up drew a mixed reaction from City pundits. HSBC said the FTSE entrants looked more stable than those in previous reshuffles, while the rejects contained three stocks - ABF, S&N and Hanson - that were bobbing in at out the index.

Steve Russell, an HSBC equity strategist, said: "The industrials are heading out of the FTSE, reflecting changes in the British economy. Rolls-Royce and Corus blatantly show the pressure that industrials are under. That's relentless - it's not about quarterly fluctuations. ICI could go the same way."

Merrill Lynch disagreed. "When investors begin to look at the new entrants on fundamentals, they will find cause to question the valuations," said Khuram Chaudhry, an equity strategist at the bank.

Dimension Data, the South African technology company quoted in London since July, and Granada Media, the media assets floated following the leisure merger of Granada Group and Compass, both gain automatic entry having now traded for more than 21 days before a FTSE 100 review.

There are some lucky escapes this time. Freeserve, the Net service provider, has been a candidate for relegation since takeover talks with T-Online, its German rival, fell through in June, but just avoided demotion. Blue Circle Industries (BCI), the cement group, would have been ejected but for a 5 per cent increase in its share price yesterday after it identified $200m (£133m) of savings from its ongoing cost-reduction plan.

But there was disappointment too. Psion, the handheld devices group that was ejected in June, just failed to stage a comeback after its shares fell 38p to 855p yesterday.