Tracking churning in Indian capitalism via the history of BSE Sensex

Another nice piece by Niranjan (Cafe Economics):

The Indian equity market was in the midst of turmoil a hundred years ago, as the speculative boom after the end of World War 1 ended. The colonial government set up a committee in 1923 to take a closer look at the operations of the Native Share and Stock Brokers’ Association of Bombay, aka the Bombay Stock Exchange. The report of the committee has data on perhaps the first index of tradable securities — dominated by textile companies — with July 1914 prices as the base. “Considerable difficulty was experienced from the absence of daily official lists … It is desirable that the Bombay Stock Exchange should publish daily official lists on the lines of the London Stock Exchanges and similar exchanges. Where considerable fluctuations take place it is desirable that the opening, closing, highest and lowest prices should be known,” the committee members complained in their report.

Such a lack of basic price information is worth recalling at a time when a lot of attention has been focused in recent days on the fortieth anniversary of the benchmark BSE Sensitive Index (Sensex). As Narendra Nathan pointed out in the Economic Times, the Sensex was set up only in 1986, though its base is 1979. The Reserve Bank of India constructed an index of traded securities in 1949, but Indian investors had to wait till 1986 for a credible daily gauge of market movements.

The list of 30 companies that make up the Sensex have changed since 1986. The changing composition of the benchmark index offers interesting clues about the changing nature of the Indian corporate sector.

The first iteration of the Sensex was dominated by the Tata Group. 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.

There has been a lot of churn in the Sensex over the decades. Corporate power in India seems to be more fragile than usually understood. Only a handful of companies such as Tata Motors, Hindustan Unilever, Mahindra & Mahindra, ITC, and Larsen & Toubro have managed to hold their place in the index. Many of the older industrial houses such as the Thapar group, the Walchand group and the Kirloskar group have slipped out of the benchmark index. Even the real estate and infrastructure giants who had a strong presence in the Sensex a decade ago — Jaiprakash Associates, Reliance Infrastructure and DLF, for example — are no longer in the index.


The changing composition of the Sensex tells us two big stories — of the rise of a new generation of Indian firms as well as the shift from manufacturing towards services.

Lots of business and economic history in the piece….Read the whole thing…

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