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Financials to Overshadow Drugmakers in India's Revamped Sensex

While equity investors will likely wake up on Monday to see Prime Minister Narendra Modi firming his hold on India’s politics, there’s something else they should look out for: The reshuffle of the main equity index.

Lenders and financial-services companies will lead the revamp with IndusInd Bank Ltd. and Yes Bank Ltd. replacing drugmakers Cipla Ltd. and Lupin Ltd. in the S&P BSE Sensex in a rejig that will lift financials’ weight to 40 percent. The number has not only doubled from 2009, but also exceeds the combined weighting of technology, consumer and automakers, according to Motilal Oswal Securities Ltd.

Consumer-focused lenders have lured investors with rising profits and rapidly-expanding loan books at a time when traditional banks have been bedeviled by mounting bad debts. The increase in their popularity has coincided with waning demand for drugmakers, with healthcare stocks’ representation in the Sensex set for a seven-year low, Motilal analysts Gautam Duggad and Deven Mistry wrote in a note.

“Of the top-10 stocks to be most impacted, four are from financials,” they said. Capital goods, utilities, telecom, metals and infrastructure will be least impacted.

Here are the key highlights from their report:

  • Banks/financial services and technology will together make up more than half the Sensex after the revision.
  • Private banks’ weight will touch record of 28.1%; insurers not represented in gauge
  • Top-10 stocks’ contribution to Sensex will drop to 63.9% from 65.7%
    • Stocks to be impacted most: HDFC Bank, HDFC, ICICI Bank, State Bank, Reliance Industries, ITC, Infosys, L&T, TCS and Maruti 
  • Of the top-20 local funds, 14 hold more than 1% of IndusInd and seven in Yes Bank
  • 58% of Sensex members have stayed in the gauge in the past decade

— With assistance by Ameya Karve

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