Fact-Sheet: The Evolving Relationship between Indian Capitalism and the Sensex – Gk Dose
The recurrent stir in the Sensex or the Sensitivity Index is a shred of evidence to the aggressive and versatile nature of the Indian economy. One hundred years ago the Indian equity market was in a mess due to the end of the speculation boom after World War I. It was in 1923 that the British government had set up a committee in 1923 for taking a close look at the daily operations of the Native Share and Stock Brokers’ Association of Bombay. It was that report which contained data on the first index of tradable securities which was heavily dominated by the textile industries. The base price as of July 1914. The report had some glaring complaints that there was an absence of daily official lists of data and such lists should also be published by the Bombay Stock Exchange on similar lines of London Stock Exchange. It is because of the high fluctuations seen that the need for recording the opening, closing, highest and lowest prices should be known.
The Recurrent Stir in Sensex
40th Anniversary of BSE Sensitive Index: The event has clammed a lot of media attention. Sensex was established in 1986 although its base had come up in 1979. Although the Reserve Bank of India had set up an index of traded securities a couple of years into independence the investors in India had to actually wait till 1986 for the generation of a reliable daily gauge of the movements of the market.
- The 30 companies which comprised the Sensex have changed since 1986. It is this change which offers great clues about the dynamic nature of the Indian Corporate Sector.
- The first churn of the Sensex was influenced by the Tata Group as the latter had six companies in the index namely- ACC, Tata Steel, Tata Power, Voltas, Indian Hotels and even Tata Motors. The Birla Group which was an extension of the Tata Group had almost five companies listed in the index namely- Grasim, Indian Rayon, Century Textiles, Hindustan Motors and Hindalco. The current version of Sensex has far less dominance of any groups, although three Tata companies are still listed on Sensex.
- Corporate India is much more fragile than is understood otherwise. The trend has been proven over the decades as only a few companies like Tata Motors, Hindustan Unilever, M&M, L&T, ITC etc. have only managed to retain their positions on the index while many big names like Kirloskar Group, the Thapar Group etc. have slipped out of it. Even the big infrastructure giants like Jaiprakash Associates, DLF, Reliance Infrastructure etc., are no longer seen in the index.
- The usual stirring also opens a window to a specific nature of Indian Economy. The preliminary version of Sensex was highly influenced by the manufacturing sector. As the services and other non-tradable sectors grew to make a mark, the role of the manufacturing sector came down considerably. One prominent reason for the above is that there has been a growing take over of the private sector over the areas which had been previously only included only in the public sector. It was only after 1991 reforms that the quota for private sector had opened. It is because of the latter that the contribution of the manufacturing sector has halved from 26 to 13 in 1988.
- Another notable trend is the decline in the number of multinational corporations especially the ones which have foreign origins. Only two MNCs which are currently listed on Sensex are Hindustan Unilever and ITC. This has resulted from the fact that many MNCs have specifically delisted their Indian subsidiaries and the new ones which have expanded in India have made a conscious choice not to list in the Indian Stock market thereby bringing down the avenues of investment for the Indian investors.
Thus, the trends are suggestive of the fact that there is an apparent rise in the new generation firms in India along with a shift towards the services sector.