Change and churn: More than 60 former 'darlings' dropped since 1985

Replacements since 1985 reflect India's economic transformation

The number of businesses that have dropped out of the BSE Sensex is twice the number that currently constitute India’s elite club of 30 top companies. 

As many as 93 companies have been part of the Sensex at various times since 1985, shows a Business Standard analysis of annual BSE data over the last 40 years. As many as 63 of them are no longer part of the index due to reasons ranging from business downturns, mergers and a drop in valuations. 

The analysis is based on names as they appeared in the index closest to a given calendar year. Name changes over 40 years can affect results, though care has been taken to account for this as far as possible; and the numbers can be considered broadly indicative of the churn that the index has seen. 

The biggest churn was in the 10-15 years after liberalisation when companies saw increased competition. There were 18 exits from the index between 1995 and 2000. The pace has since dropped to single-digit exits over every five-year period (chart 1). 

The Sensex has also seen a compression of the gap between the most and least valuable companies. The largest company could be as much as 100 times larger than the smallest in the early 1990s. This has since dropped to around 16 times (chart 2). 

Manufacturing once accounted for 96 per cent of the Sensex constituents in 1991, based on market capitalisation. Its share has since dropped to under 50 per cent, as the services sector became more dominant. (chart 3). 

The pace of technological change may have a bearing on the pace of change. 

IT, real estate and pharmaceutical are among sectors that have entered Sensex based on their growth and valuations, said Alok Churiwala, managing director (MD) of Churiwala Securities and former vice-chairman of BSE Brokers’ Forum. 

Recent years have seen fundamental economic changes, such as digitisation and formalisation. The surge in new-age startups and other large listings may increase the pace at which the index constituents change, according to Churiwala, heralding a period of greater churn. “Not only will trends emerge faster but also fade out faster,” he said. 

Manufacturing’s expanding economic role may eventually increase its index share, alongside a contribution from the tertiary sector. However, Uttam Bagri, MD of BCB Brokerage, anticipates a measured pace of transformation, noting: “I expect evolution not revolution.”