Capital Goods, Metals Lose Sheen In Nifty-50

Many investors want to play safe on the stock market and they resort to a strategy called “Buy it and forget it”, by investing in the index. However, the review of their investment is necessary as a lot of changes happen in the index constituents and its sectors over a period of time. As we enter a new decade from 2021, it will be interesting to see how the changes that have taken place in benchmark index Nifty-50 over a decade from –2010 to 2020—and how they have impacted the investors' fortune over the last decade.

An interesting study carried out by Motilal Oswal Institutional Equities under its “India Strategy” series, underlines that even if one is invested in the index, its constant review is in the interest of the investor. Some of the key observations of this study provide an interesting insight to the investors for future investing.

Between December 2010 and December 2020, 30 companies of the Nifty 50 index have remained unchanged, that is 60 per cent of the index constituents have remained the same. However, 40 per cent of the index companies which were part of the index in December 2010 are no longer part of the index in December 2020.

The weight of these 30 companies that have continued to be part of the Nifty over the decade has remained almost the same during the decade. These companies weighed 82.50 per cent in December 2020, which weighted 83.70 per cent during December 2010.

Some of the prominent companies that were part of the Nifty in December 2010 like Bharat Heavy Electricals Ltd (BHEL), Sterlite Industries, Jindal Steel, Ambuja Cements, ACC, SAIL, DLF, Tata Power, IDFC, PNB, Cairn Energy, Vedanta, Siemens, JP Associates, Reliance Infra, Reliance Communications (RCOM), Reliance Power, Reliance Capital, Suzlon, and Ranbaxy Laboratories are not part of the Nifty anymore. These stocks together carried a weightage of 16.30 per cent in Nifty in December 2010. Another interesting part of this analysis is that the entire pack of companies belonging to Anil Dhirubhai Ambani Group (ADAG) has been moved out of the benchmark index.

These 20 companies were replaced by new-age companies in Nifty during the 2020 decade that includes; Asian Paints, Britannia Industries, Titan, Nestle, Bajaj Auto Finance, Bajaj Finserv, IndusInd Bank, HDFC Life, SBI Life, Divis Laboratories, Eicher Motors, Tech Mahindra, Ultratech Cement, Shree Cement, Grasim Industries, JSW Steel, Adani Ports, United Phosphorus (UPL), Coal India, and Indian Oil Corporation  (IOC).

Though there is a change of 40 per cent in the index constituents, the weight of the top five in the index has remained almost the same with the only exception of L&T, which was there in December 2010 as one of the top five heavyweights is being replaced by HDFC Bank in December 2020. The other four heavyweights that continue to find their place in Nifty even in December 2020 include; Reliance Industries (RIL), Infosys Technologies, ICICI Bank, and HDFC. 

As the new companies have made their entry into the index, the sectoral composition of the index has undergone significant change. The oil and Gas (O&G) sector had the highest weightage of 14.70 per cent in December 2010, which has come down to 12.50 per cent in December 2020. Similarly, Private sector banks’ weightage has increased from 14.50 per cent to 24.70 per cent, IT sector’s weight has increased from 14.30 per cent to 16.30 per cent while capital goods sectors’ weightage came down from 8.70 per cent to 2.60 per cent and Metals sector lost 6.40 per cent weight from 8.40 per cent to 2 per cent.

This explains the story of the decade as far as returns and outperformance areconcerned: BFSI: Its weight increased from 26 per cent to 39 per cent. The weight of BFSI, IT, and consumer pack increased from 47 per cent to 67 per cent. Metals, capital goods, utilities, O&G, and real estate saw a decline in weight from 37 per cent to 19 per cent.