Markets ended last week with a loss, Sensex down 5.4% and Nifty down 6.6%. The reason for this goes without saying! Tech bellwether, Infosys, gave a lower guidance for the current fiscal (11%-12%), which saw a de-rating of the entire infotech sector on the bourses. Infosys alone lost Rs 94 bn in the week gone by. However, the Sensex managed to curtail the market cap. erosion to Rs 49 bn, primarily due to the gains witnessed by index heavyweights like Hero Honda, ITC and Ranbaxy.
In this article, we try to understand what is the composition of the Sensex. We try to look at how the Sensex has performed in the last 7-8 years on the basis of its market capitalisation and which are the companies who contributed to the BSE-30 market capitalisation.
BSE-30, as the name implies, is an index of 30 stocks that are chosen into the index on various parameters. These 30 stocks form over 40%. of the total market capitalisation of BSE. Market capitalisation of BSE (as a whole) stood at Rs 5,722 bn (FY03E), while the market capitalisation of BSE-30 stocks stood at Rs 2,414 bn as on the last trading day of FY03. This only reaffirms the importance of these 30 stocks in the Indian capital markets.
Market capitalisation of BSE-30 increased by 67% in the last 7 years, which translates into a CAGR of 8% during this period. However, it is important to consider the constituents of the index who actually contributed to this growth and those who were the culprits at eroding the capitalisation.
On one hand, there are companies in the index who registered a whopping rise of over 5400% in market capitalisation, while there are also those who lost ground (58%). However, it must be noted that the stocks that gained, did so from a very low base, while those who lost, already had a huge market capitalisation.
Top 5 market cap. gainers (Rs m)
|Infosys Technologies Ltd.
|Satyam Computer Services Ltd.
|Zee Telefilms Ltd.
|Dr. Reddy's Laboratories Ltd.
|Hero Honda Motors Ltd.
Top 5 market cap. losers (Rs m)
|Tata Engineering & Locomotive Co. Ltd.
|Colgate-Palmolive (India) Ltd.
|Mahanagar Telephone Nigam Ltd.
|Tata Iron & Steel Co. Ltd.
|Hindalco Industries Ltd.
|*As on 6th. March 1996.
Another interesting point to note here is the growth of BSE market capitalisation as compared to the revenue and earnings growth of the companies forming a part of BSE-30. While the bottomline of these 30 companies grew at about 15%-16% in the last 7 years, this performance is not reflected in the total market capitalisation of BSE-30. In effect, the P/E of the BSE group has been more than halved in these 7 years to the current 11x earnings.
Before looking at the composition of BSE-30, it must be pointed out that two companies, ICICI Bank and HCL Technologies, did not form a part of the BSE-30. While ICICI Bank got in only in FY98, HCL Technologies tapped the market in FY00.
Industry and stock weightage in an index is also very crucial for the market capitalisation of that index. Weightage is basically the market capitalisation of a particular industry/stock as a percentage of the total index capitalisation. Industry-wise, as can be seen from the chart above, manufacturing has a lionís share of the total weightage in BSE-30 at almost 50% while the other two, services and FMCG (agriculture) share the balance half almost equally.
However, the weightage distribution was a bit different in FY96 when the share of the manufacturing sector in the Sensex was higher at 61% while the weightage of FMCG and service industries was relatively lower at 17% and 22% respectively. However, as times changed and the importance of services sector grew as a percentage of GDP, changes were made in the index to align with the same. However, it must be noted here that as a percentage of GDP, services account for the lionís share at almost 50%.
As far as individual stocks are concerned, the top three stocks by weightage in BSE-30 are HLL, Reliance and Infosys. These stocks alone account for almost 1/3rd. of the market capitalisation of BSE-30. Hence, any significant movement in any of these three stocks will have a consequent corresponding effect. The effect of the high weightage of these stocks is evident during the results seasons, wherein the markets, generally, tend to move in line with the outcome of the results.
Infact, BSE-30 was able to register an increase in market capitalisation in the last 8 years as the top 10 market gainers have a combined weightage of 52% on the Sensex while the top 10 losers contributed only 17% of BSE-30 market capitalisation. The three heavyweights mentioned above are among the top 10 gainers.
Thus, going forward, as the Sensex continues to depend heavily on heavyweights like Infosys, Reliance and HLL, volatility would remain. Moreover, since 50% of the GDP currently is a factor of services, it is likely that there could be some changes in the components of the index. A good indicator of times changing ahead is the recent reshuffle in the composition of some the key indices of BSE with the new entrants being from banks, public sector enterprises and other old economy firms.