Zomato will create history on Monday by becoming the first new-age technology stock to be included in the prestigious BSE Sensex index, replacing JSW Steel in the semi-annual rebalancing of constituents. This marks a major shift in India’s business landscape. While adjustments are routine, the food delivery giant’s joining the club of India’s most influential companies underscores the growing prominence of the digital industry.
Historically, the 30-stock blue chip index has seen considerable volatility. Only 8 of the original constituents from 1986 are still part of the index. In 1996, the Sensex underwent a dramatic overhaul with 15 out of 30 stocks being replaced by new guards. Today, only one-third of the companies in the index were established companies from about a decade ago, and in the past four years, one-sixth of the companies have disappeared from the list. Long-term analysis of this rebalancing shows the extent of competition.
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zomato zoom
Zomato’s inclusion in the index comes on the back of continued gains in its stock. Shares of the Deepinder Goyal-led company have soared 45% in the past six months and have soared 133% so far in 2024. Meanwhile, the Sensex is up just 10% this year. The surge pushed Zomato’s market capitalization to $2.1 trillion. By comparison, JSW Steel shares have gained just 1.1% over the past six months and are up just 5% year to date.
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Zomato’s improving financials were the engine driving this rally. The company continues its impressive growth trajectory after turning a profit last fiscal year. Consolidated operating income soared 69% in the July-September quarter $47.99 billion, net profit increased five times over the previous year $1.76 billion rupees. This bottom-line improvement comes from continued expansion of food delivery margins and a rapid commercial operation that is close to break-even.
Index changes trigger portfolio adjustments in global and domestic index funds, which often lead to capital inflows and outflows that lead to stock price fluctuations. According to a report by Nuvama Institutional Equities, Zomato is expected to see inflows of $513 million, while excluding JSW Steel will result in outflows of $252 million.
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economic influence
The Sensex is a barometer of India’s economic progress and reflects the country’s transformation. Its growing influence reflects the growing dominance of its companies in the Indian economy. The combined revenue of these giants will account for about 13% of India’s gross domestic product in 2023-24, up from 10% in 2004-05. In terms of profits, its share rose to 1.7% from 1.2% in the same period.
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However, this also highlights the increasing concentration of corporate profits in the hands of these leading companies, which may require a nuanced perspective. While Sensex companies drive economic growth and innovation in India, it is critical to address underlying concerns about their market dominance.
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