InvestorQ : How old is the BSE Sensex and how has the composition of the index changed over the years of its existence?
Anamika Sodhani made post

How old is the BSE Sensex and how has the composition of the index changed over the years of its existence?

2 years ago

The Sensex was officially launched with values only in 1986 but the back values are available from 1979. In fact, the base year for the Sensex is 1979. Here are some of the highlights you must know about the shift in the Sensex over the years.

· A full 40 years after its launch, the Sensex moved from a level of 100 to 42,000. Even if you leave out the dividends paid out by the Sensex companies, the capital appreciation was around 16.30% annualized. That is massive returns for any index over such a long period.

· Over the years, Sensex change its methodology of weighting. While the NSE Nifty was always weighted on free float market cap, the Sensex continued to weight stocks on the overall market cap. It was only in September 2003 that the Sensex shifted from market cap weighting to free float market weighting. It was globally considered to be a better measure.

· The number of companies in the Sensex has always stood at 30 companies. Recently the number was increased from 30 to 31 when the Tata Motors DVR was also added as Sensex scrip. This is also the first time the main stock and DVR have both been part of the Sensex.

· Let us also look at how the Sensex composition changed over the years. Since its launch in 1979 and its official daily calculation in 1986, the Sensex has undergone some very interesting shifts. Traditional members of the Sensex have either exited the index, some have wound up while others have delisted for a variety of reasons.

· Only 7 out the 30 companies that were part of the original 1979 Sensex are still continuing in the Sensex in 2019. These include; Tata Steel, Tata Motors, L&T, ITC, Hindustan Unilever, Reliance Industries and Mahindra & Mahindra.

· Back in 1979, the companies owned by the Tatas & Birlas accounted for 45% of the market cap of the Sensex. The sector with the highest weightage was Textiles with 23.71%. In 2020, financials account for 41% of the Sensex market cap. Not a single financial stock existed in the Sensex till the mid-1990s. Even IT stocks were included in the Sensex only in the late 1990s.

· The original 1979 Sensex had two car markers i.e. Hindustan Motors of the Birla Group and Premier Automobiles of the Doshi group. Both companies do not exist any longer. Back in 1979, Tata Motors was part of the Sensex but was a truck company and was called TELCO. M&M was also present but only made tractors and farm equipment.

· Look at the 3 most prominent sectors in the Sensex today. Financials, IT and autos account for 65% of Sensex. Nearly 95% of these stocks did not even exist in the stock markets back in 1979. That is also reflective of how the Sensex has kept pace with the changing undertone of the Indian economy

· The one thing that has not changed is the ability of the Sensex as a representative index and the ability of Indian equity as an asset class to consistently outperform other classes of investments. It has outperformed bond, bank deposits and also gold during this period and by a huge margin. Sensex has outperformed other asset classes like bank FDs and gold. The wealth ratio says it all. An investment of Rs.10,000 in the Sensex in 1979 would have grown to Rs.45.29 lakhs over the last 40 years; including dividends. Effectively, this is a passive investment because you don’t worry about timing the market or even stock selection. You just put the money in the Sensex and then look at it after 40 years. This includes the dividend effect also and the average compounded annual growth rate (CAGR) over 40 years works out to 16.51% per year.

Sensex has not only been a barometer of the economy but also evidence of why equity still is your best source of wealth creation over the long run.