MOSL: INDIA STRATEGY-Sectoral weights in Nifty - A journey down the memory lane-Financials lord over the indices-set to gain further

​INDIA STRATEGY: Sectoral weights in Nifty - A journey down the memory lane; Financials lord over the indices; set to gain further strength

Over the years, the sectoral representation in Nifty-50 has undergone a sea change, in consonance with the changes in the underlying economy - new sectors have evolved, while some of the erstwhile dominant sectors of the economy have lost relative importance in the new India.

In this report, we take a deep dive to understand how the weights of various sectors/companies in Nifty-50 have changed in the last 15 years

BFSI and Oil account for almost half of the index

The weight of Financials has seen a secular rise in the benchmark indices. BFSI now contributes 35.6% (+3.1x in 15 years) of Nifty-50. The share of Private Banks/NBFC in the index has gone up, led by a) better earnings performance, coupled with capital raising from the markets (this boosted the free float of Financials), b) sub-par earnings growth witnessed in other sections of the market over the last eight years and c) index moving to a free float basis from June 2009.

As more Insurance companies are listed and the relevance of NBFCs goes up (given the wider financialization of savings and broad-basing of financial disintermediation), we expect the weight of BFSI to inch up further.

We note that 15 years back, PSU Banks’ weight (4.7%) was higher than Private Banks (4.4%) in the index, with SBI alone contributing 4.4% of Nifty-50. Today, at 24.3%, Private Banks have the highest weight in Nifty-50, while PSU Banks have just 3% weight. HDFC Bank, at 9.8%, is the highest weighted stock today, much higher than 1.8% 15 years back.

Six out of the nine BFSI companies in Nifty-50 today are private banks. In India, there are 22 listed PSU banks and only 17 listed private banks. This is significantly different from how things were 15 years back in Nifty-50 – five BFSI companies, of which only two were private banks. Notably, of the 19 listed private banks in December 2002, eight have merged till-date.