BSE Sensex set for revamp - Views on News from Equitymaster

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BSE Sensex set for revamp

Feb 18, 2000

The Securities and Exchange Board of India (Sebi) has asked the Bombay Stock Exchange (BSE) to consider revamping the BSE Sensex. The regulator is reported to have pointed out that three stocks - Infosys, Reliance and Hindustan Lever, account for over 40% weightage in the Sensex. This makes the index unrepresentative of the market.The Sebi's concerns stems from the fact that given the concentration of weightage in select stocks, there is a possibility that artificial movements in the Sensex can be created.

The current rally in the markets is largely driven by infotech, pharma, media and to an extent banking and finance stocks. Among the finance stocks the non-banking finance companies (not in Sensex) have been large gainers in the markets. The weightages of these sectors in the BSE Sensex are as follows:

The Sebi's concern seems justified. There is definitely a need to broad base the Sensex to make it representative of the movements in the markets. The software sector, given this view, should be represented by a larger number of stocks. Moreover, media and finance stocks must also find a place in the Sensex.

A broader based index will help in preventing artificial movements as well as, generally speaking, limit volatility. These results are both acceptable and desirable.

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