The evolution of stock indices over the years
Gone are the times when school students were taught stories with the moral of “slow and steady wins the race”. However, in the age of 4th Industrial Revolution, this moral has adapted itself and now rewards creativity and speed to “win a race.” This is especially true about the global financial sector- more so for the stock indices around the world.
One of the most important indicators of any economy is the flagship stock market index of that country, for instance, Sensex in India and NASDAQ for the Unites States. Each day we come across these indices gaining or losing points and financial experts coming up with their targets for such indices. While they serve as a fair proxy to understand the state of an economy, which companies constitute these indexes and how much share does each company’s revenue have in these stock market indices, is also an interesting aspect to be understood.
The BSE Sensex or the S&P BSE Sensex is a list of 30 companies that form a part of the BSE Index (Sensex). These companies are taken from diverse sectors and that too with a high market capitalisation. The base value of the S&P BSE Sensex is taken as 100 on 1 April 1979 and its base year as 1978-79, which is why we have taken companies that were there in 1978.
The first iteration of the Sensex was dominated by the Tata Group. Over the years, there has been a lot of churn in the Sensex. In its early days, Sensex was dominated by manufacturing companies, there were as many as six Tata companies in the index — ACC, Tata Power, Tata Steel, Tata Motors, Voltas and Indian Hotels. The extended Birla group had another five — Century Textiles, Grasim, Indian Rayon, Hindalco and Hindustan Motors. The Sensex now is less dominated by a few groups although, there are still three Tata companies in the list (TCS, Tata Steel and Titan). There was hardly any representation of banks in the Sensex until the early 1990s but today about 45% of the index is composed by financial sector companies. The latest addition to this list is Shree cements replacing Yes bank.
The changing composition of the Sensex tells us two big stories — of the rise of a new generation of Indian firms as well as a broad shift from manufacturing towards services.
A similar analysis of United States’ top firms reveals a shift from manufacturing to technology companies. A 100 years ago, US Steel was the world’s largest company by market capital, a title held by Apple Inc. today while other giants like Microsoft and Alphabet not very far either. The top-most five of the Top 10 companies in the Unites States by market capitalization today are technology companies, validating innovation as the “new moral”. An integral component of these firms’ success is their focus to emerging ventures called “startups” through their dedicated accelerator programs.
While it is hard to imagine what this list would look like in the year, say, 2070, certainly it would not only be starkly different from what it is today but also would reflect the nature and relevance of finance in the coming years. Due to the emergence of disruptive business models, data has come to be a huge asset today- something that would have seemed impossible a few decades ago. The key to sustain in the business world today is to be creative and fast- a new moral to win the race.