Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Infotech takes charge of the Sensex - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 23, 1999

    Infotech takes charge of the Sensex

    Academics are of the view that alterations in the composition of indices are necessary in order to ensure that they stay representative of the class of items (in this case stocks) they are drawn from. After all, the Dow Jones Industrial Average (DJIA) Index today includes only one stock, General Electric, from its original composition. In keeping with this rationale, the 30 share BSE Sensitive Index (Sensex), too, has undergone several 'facelifts' over the last few years.

    The realisation that the high quality of Indian talent and the low operating costs could be capitalised upon to create a world class information technology supplier dawned on the Indian entrepreneur early this decade. Since then, the Indian sub continent has been buzzing with activity - focussing on the creation of world class infotech companies. Success has been forthcoming. India today boasts of a large and vibrant US$ 4 bn infotech sector. The sector has grown at a rate of 60% per annum over the last five years.

    It was only natural that infotech companies find a place in the BSE Sensex. Currently, two companies from this sector are a part of the Sensex - Infosys Technologies and NIIT. Comparisons of the sectoral break up of the Sensex now and at the beginning of the 1999 makes interesting reading.

    Infotech Is The New Heavy Weight In The Sensex
    (as on January 2, 1999) (as on December 22, 1999)

    The weightage of the infotech stocks has increased dramatically from 5% to 18% during the period under study. Infact, this is the only one sector to have logged such a substantial gain. Most other gainers have moved up only marginally. The key losers, on the other hand, were consumer products (weightage declined by 3%) and tobacco (4%). The influence of the infotech sector, Infosys in particular, on the Sensex is apparent. The reason for the increasing influence of this sector in not far to seek.

    Infosys leads the charge!

    Realising the importance of the infotech sector in the country, the government too is initiating measures to ensure that no roadblocks are created in the development process of this sector. Additionally, much credibility has been attributed to the prospects of the infotech industry after McKinsey stated that this would become a US$ 87 (21% of FY99 GDP) bn sector by 2007.

    It would not be surprising if the Sensex were to be restructured to include more infotech companies in view of their increasing influence on the Indian economy. In this case the skew in sector allocation would further shift towards infotech. Wipro, a software major that is not a part of the Sensex, for example, has a market capitalisation of Rs 486 bn (18.5% of the total market capitalisation of the Sensex).

    The seemingly never-ending run up in the stock prices of infotech stocks has resulted in the marginalisation of the other heavy weights in the Sensex. First among these is the consumer products major Hindustan Lever Limited, which has a market cap in excess of Rs 450 bn (17.7% weightage). Other stocks include Reliance Industries (8.4% weightage) and ITC (6.8% weightage). The marginalisation will become evident once the portfolio compositions of various funds that are benchmarked to the Sensex adjust to the new weightages.

    In a poll that was recently conducted on equitymaster.com, over 86% of the respondents felt that Wipro should be made a part of the BSE Sensex. Assuming that Wipro were to replace, say, Tata Power in the Sensex, the sector weightages would alter dramatically. The share of the infotech sector would jump to 30%.

    Wipro makes all the difference!
    (as on December 22, 1999)

    In any case, the infotech sector is on the threshold of gaining a dominant weightage in the composition of the Sensex and, in all likelihood (given the strong uptrend in the stock price of Infosys), it will exceed it in the future. The 'change in leadership' will be justified. Information technology is today affecting every aspect of our existence. It is revolutionising the way we live. It is what will lead the Indian economy into the 21st century.



    Equitymaster requests your view! Post a comment on "Infotech takes charge of the Sensex". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    A Darkness Is Spreading Across the US (Vivek Kaul's Diary)

    Aug 22, 2017

    Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 22, 2017 (Close)