The Hindu Business Line : Nifty and Sensex

STOCKS in the oil sector (uptsream and downstream) have emerged as the key drivers of the narrow market indices such as the S&P CNX Nifty and BSE Sensitive Index.

This is a far cry from the time the information technology (IT) sector stocks had a stranglehold on index movements. As the NSE's and the BSE's index managers added more IT stocks such as HCL Technologies, Digital GlobalSoft and Wipro, the IT effect became more pronounced.

A shift away from IT: Even in the aftermath of the meltdown in stock prices in 2000, IT stocks were the key determinants of the direction of the indices and the magnitude of their movement. Stocks of fast-moving consumer goods (FMCG) and pharmaceuticals completed the triad of stocks on which the fortunes of the indices rested.

However, the bullish phase over the past four months has changed the picture comprehensively. IT stocks — especially that of frontline companies such as Wipro, Infosys and Satyam Computer — have been a marginal factor in this bullish phase.

Much the same is true for frontline pharmaceutical stocks and FMCG stocks, with the exception of Hindustan Lever. This, coupled with spurt in the prices of oil company stocks, has been behind the change in the profile of the Nifty and Sensex.

Oil stocks dominate: Stocks of companies from the oil/gas/petrochemicals sector now account for 22 per cent of the Nifty's market capitalisation and 20 per cent of that of the Sensex.

This is despite the non-inclusion of the bigwigs — Indian Oil and ONGC. The quartet of HPCL, BPCL, Reliance and IPCL has captured the sharp re-rating of stocks from this sector.

If IOC and/or ONGC make it to either of the indices, the inclusion could have a pronounced effect.

The oil sector dominance appears set to continue, even if the valuation levels drop. The weights may drop marginally if Infosys, Wipro and Hindustan Lever move up sharply, and simultaneously.

Key pointers: Table shows the weights for ten sectors in the Nifty and the Sensex. The following are some key pointers:

The substantial re-rating of public sector stocks and the continued fancy for HDFC and HDFC Bank have pushed the weight for the finance sector to 13 per cent in both the indices. The Nifty has more finance sector stocks than the Sensex.

Thus the sector's re-rating is well-reflected in the Nifty, despite its market capitalisation being higher by about Rs 1,00,000 crore compared to the Sensex.

The Nifty captures the underlying rally in ferrous and non-ferrous metal stocks better than the Sensex.

About 10 per cent of its movements is now attributed to metal company stocks such as Tata Steel, Hindalco, and Nalco.

The FMCG sector continues to have a significant bearing on the Sensex — accounting as it does for about 21.3 per vent of the market capitalisation. Here, the Nifty reflects the ground realities better.

The magnified effect of FMCG stocks in the Sensex is due to its lower market capitalisation which, in turn, pushes up the influence of Hindustan Lever and ITC. (This is also why the weights of the top ten stocks differ significantly between the Nifty and the Sensex.)

The presence of Wipro still gives the IT sector a sizeable weight of 14 per cent in the Nifty — four percentage points higher than the Sensex. However, this is substantially lower compared to the 23 per cent share that IT stocks had in the Nifty pie when Wipro was inducted.

The rally in auto, cement, metals and engineering sector stocks has been impressive by any yardstick.

But the absence of bigwigs is reflected in the weight of 23 per cent that these four sectors collectively account for.

However, with none of the players remotely approaching the scale of operations of Hindustan Lever, Reliance, HPCL, BPCL and Infosys (only in the context of the IT industry), these industries may continue to exercise only a modest influence on the index movements.

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