In an unprecedented move, the Securities and Exchange Board of India (Sebi) yesterday asked the Bombay Stock Exchange (BSE) to review the composition of the 30-scrip sensex as very few scrips command a very large weightage in it at present.

The BSE has agreed to review the composition of the index.

The issue was raised by Sebi senior executive director L K Singhvi at the BSE board meeting yesterday. Sebi wants the BSE to either make the sensex more broad-based or ensure that weightage is more evenly distributed.

"It appears that the sensex does not represent a balance of the market. Very few scrips seem to be commanding a major part of the weightage of the index and this may not be a good sign. Considering that most investors track the sensex, this (dominance of a few scrips) creates a psychology that the entire market is going up when actually just two or three stocks are going up," Singhvi told Business Standard.

"Normally, five to six scrips dominate an index, but we are seeing a trend where even two or three scrips are dominating the sensex movement. This also means that artificial movement of the sensex can be created. This may not be in the best interest of the market. We have, therefore, raised the issue at the board meeting of the exchange and they have said that the index committee would act on our suggestion," said Singhvi.

"The index must be broad-based and scrips with high liquidity, large floating stock across industries must be incorporated in the index," he added. Singhvi also informed the board that derivatives trading, which would involve futures trading on the Sensex, could cause further problems if the index continued to be dominated by just a couple of scrips. According to a Business Standard Research Bureau study, just three scrips_ Infosys Technologies, Mahanagar Telephone Nigam Ltd (MTNL) and Reliance Industries_ had led the recent 1,000 point surge on the Sensex from around 5,000 on October 8, 1999, to 6,000 on February 11, 2000. The trio, with a Sensex weightage of 34.31 per cent, outperformed the over-all 901 points rally in the Sensex by a hefty contribution of 1070.7 points or 118.75 per cent of the Sensex gain. Another seven stocks added 280 points which led to 1,350 points added by the 10 stocks to the Sensex spurt. The remaining 20 stocks declined by 448 points which showed the dominance of the three stocks in effecting a movement in the index. In fact, Infosys Technologies alone supplemented the Sensex by 689.95 points. MTNL's contribution was 191.23 points to the Sensex tally. Reliance Industries chipped in with 189 points.