Fifteen of the current Sensex constituents, including the likes of RIL, L&T, SBI, ONGC and HDFC, may not be part of the benchmark index over the next decade, given the expected structural changes that will reset the Indian economy.
Other names include Bajaj Auto, Hero MotoCorp, Tata Power, Tata Steel, BHEL and M&M.
In a detailed investor report, Saurabh Mukherjea, head of equities at Ambit Capital, stated that Prime Minister Narendra Modi is driving three structural resets that will meaningfully change the Indian economy over the long term.
These changes are a shift in India’s savings landscape from gold and land towards the formal financial system, a disruption in the Indian model of crony capitalism and the redefinition of India’s subsidy mechanism.
FE engaged with at least six market experts for their views, but the exercise yielded virtually no comment. A research head with a leading foreign financial services firm in Mumbai said that selection of index constituents depends on the state of the Indian economy and the importance of sectors in that context. “It is very difficult to gauge what India may look like a decade from now. It may have higher weights of telecom and e-commerce companies if the latter decide to list, but it is too early to predict these changes,” he said on conditions of anonymity.
NTPC, Hindalco, Sesa Sterlite and Bharti Airtel complete the list of 15 stocks that are likely to see exits. However, the report did not provide replacements, either sectorally or in individual names of companies.
“The old contract between business and politics seems set for a major overhaul over the next decade… For those who believe that giant market-leading firms are highly unlikely to be kicked out of the Sensex, we highlight Century Textiles, GSFC, Bombay Dyeing, GE Shipping and Ballarpur Industries that were in the Sensex in 1992. The disruption created by the end of the ‘License Raj’ was such that all of these firms were out of the Sensex by 2002,” the report noted.
Ambit’s analysis showed that Sensex churn across 10 years peaked at 67% (or 20 replacements in a 30-stock index) in the years following the 1991 reforms (1993-1995). From those levels, Sensex churn has fallen to a low of 27% (eight replacements) in the latest 10-year iteration (from 2004 to 2014).
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