 "Equity Market")
The equity markets are turning away from export-driven sectors as American President Donald Trump’s policies have made exports to the US difficult for Indian companies. The combined weighting of Information Technology (IT) services and pharmaceuticals — India’s two largest export-oriented sectors — in the Nifty 50 index has fallen to just 12.3 per cent, the lowest in 25 years.
By contrast, in March 2022, these sectors accounted for 22 per cent of the index. Meanwhile, domestic demand-driven sectors — including retail, food delivery services, telecom, aviation, and hospitals — have seen a sharp rise in their weightings.
These non-trade sectors now have a combined weighting of 12.9 per cent in the index, up from 4.8 per cent in March 2022 and just 2.4 per cent in March 2015. Earlier, this segment also included media firms such as Zee Entertainment and real estate developers, including DLF and Unitech.
Today, domestic demand-driven sectors are the second-heaviest segment in the index after banking, financial services and insurance (BFSI), which retains a weighting of 35.3 per cent, down marginally from 35.6 per cent at the end of March this year. BFSI’s dominance has broadly been maintained, rising from an eight-year low of 30.6 per cent in March 2024. The automobile sector has also seen a rise in its index weighting amid expectations of a demand revival after the recent reduction in goods and
services tax.
Its weighting in the Nifty 50 has increased to 7.7 per cent from 7.4 per cent at the end of March this year, though this remains below the six-year peak of 7.9 per cent in March 2024.
Telecom operator Bharti Airtel alone now has a higher weighting in the index than the combined three largest pharmaceutical firms -- Cipla, Dr Reddy’s Laboratories, and Sun Pharmaceuticals. Bharti Airtel’s weighting has doubled over the past three and a half years, rising from 2.3 per cent in March 2022 to 4.6 per cent on Friday, while pharmaceutical companies have declined from 3.3 per cent to 2.9 per cent.
Food delivery company Eternal, owner of Zomato and Blinkit, is now the second-largest stock in the domestic demand segment after Bharti Airtel, with a weighting of 2.6 per cent -- higher than traditional heavyweights such as Tata Consultancy Services, Hindustan Unilever, Asian Paints, Bajaj Finance, Maruti Suzuki, and Tata Motors. Higher index weightings mean that changes in these companies’ share prices now have a greater impact on the overall index.
Eternal joined the Nifty 50 in March alongside InterGlobe Aviation (IndiGo Airlines), and Max Healthcare Institute, replacing Britannia Industries, Bharat Petroleum Corporation, and Hero MotoCorp.
Analysts attribute these shifts to weak earnings growth in traditional sectors. “Most conventional manufacturing and services industries, including IT, BFSI, pharma, FMCG, metals, and oil & gas, are struggling with poor revenue and earnings growth,” says Dhananjay Sinha, co-head of research and equity strategy at Systematix Institutional Equity. “Most companies in these sectors have been laggards on the bourses leading to a decline in their index weightings.”
Poor growth prospects have pushed investors toward stocks promising faster expansion, including app-based internet aggregators such as Eternal, modern retail, corporate hospital chains and aviation. These sectors benefit from low penetration and the potential to capture market share from older sectors.
However, many companies in these “sunrise” sectors are either loss-making or have earnings that are small relative to their market capitalisation. “A mismatch between market capitalisation and earnings could weigh on Nifty 50 earnings per share in the short term,” says Sinha.
