Industry Insight: BSE Sensex: A 40 Year Journey … Dr.Goparaju Purna Sudhakar

This industry Insight depicts 40 year journey of BSE Sensex comprising of various important happenings.

Origins of BSE Sensex: BSE Sensex (Bombay Stock Exchange – Sensitive Index), a real time indicator of Bombay stock exchange was officially launched on April 01, 1986. However, its base value/data was set at 100 points on April 01, 1979. Since 1979, Sensex gave a return of 16.1% CAGR; and since 1986, it gave a return of 13.7% CAGR (Compound Annual Growth Rate). Since 1979 till 2019, gold rate has grown 45 times; whereas, Sensex has grown by 390 times.

40 Year Growth of Sensex: After Sensex’s base value of 100 points in 1979; its value in 1989 hit 1,000 points, in 1999 its value hit 5,000 points; in 2007 its value hit 20,000 points; and by 2019 it surpassed 39,000 points.

Who Survived 30 Years in Sensex Indicator?:  In 1989, there were 30 companies in Sensex indicator; Based on the stock value of these 30 companies, Sensex quote was computed. In 2019, also, there were 30 companies in Sensex; over a period of time, some companies were excluded from Sensex and some others were inducted into Sensex. Very few companies remained stable over 30 years in Sensex. Out of 30 companies, there were only 5 companies (16.67%) which could survive and retained their place in Sensex between 1989 and 2019. They are ITC, Hindustan Unilever (HUL), Reliance Industries, Tata Motors and Tata Steel. That means, over 30 years journey of Sensex, representative companies from FMCG, Auto and Steel sectors retained their place in Sensex indicator.

Pattern of Exclusion and Inclusion of Companies from/to Sensex: Between 1992 and 2018, there were 56 events of exclusion and inclusion from/to Sensex. In each of events one of more companies were excluded and one of more companies were included. If we observe the pattern of exclusions, 20 companies out of 56 excluded companies, surpassed (gave better results – returns in CAGR) than Sensex Index returns after their exclusion from Sensex Index till 2018. For example, on 19 August 1996, Bharat Forge was excluded from Sensex. From 1996, Sensex returned CAGR of 11.6%; whereas Bharat Forge has returned CAGR of 17.7%. This pattern was observed in 20 companies (35.7%) out of 56 excluded companies.

Composition/Representation of Different Sectors in Sensex over 20 years: Between 1999 and 2019, the different sector weights represented in Sensex have different pattern: FMCG and Healthcare sectors weights went down; BFSI and IT sector weight has gone up; and other sectors such as Auto, Auto Ancillaries, Power, Metals, Construction, Realty, Telecom, and Infra have shown a pattern of either down->up->down or up->down->up and a combination of these patterns in 1999, 2009 and 2019. In March 1999, Sensex companies held 51.5% of total market capitalization; in March 2019, Sensex companies held 45.9% of total market capitalization.

 How is the Shareholding Pattern of Companies in Sensex Index?:  In 2019, the share ownership of Sensex Companies is: 40% (Promoters), 18% (DIIs – Domestic Institutional Investors), 22% (FIIs – Foreign Institutional Investors), 8% (Retail Investors) and 12% (Other Investors). The share of DIIs and FIIs in Sensex companies has gone up between 2001 and 2019; whereas the share of Retail and Other investors has gone down during the same period in Sensex companies. Promoters’ 40% share has experienced little bit volatility (-5% and +5%) during the same period and however it remained around 40%.

Thus over a period of 40 years, Sensex has seen the growth, experienced exclusion and inclusion of companies, sector weightages have changed in Sensex; and shareholding patterns of Sensex companies is also changed.

Happy Reading ………..
Dr.Goparaju Purna Sudhakar

(Source: “Sensex@40”, Wealth Insight, Vol. XII, No. 11, May 2019.)