The story of Sensex since its inception in 1986 is the story of India’s economy
The Sensex closed at an all-time high of 39,084 points yesterday, as strong expectations of a rate cut and continued liquidity support by the Reserve Bank of India along with a surge in foreign portfolio investments drove a week-long rally.
By the end of this year, the Sensex would have been in operation for 33 years. The index of the 30 largest stocks on the Bombay Stock Exchange first came into being in 1986 with 1979 being set as its base year. The title itself is a combination of the words “sensitive” and “index”.
These were the original companies when the Sensex was first compiled.
|Ballarpur Industries||Premier Automobiles|
|Century Textiles||Hindustan Motors|
|Bombay Dyeing||Mahindra & Mahindra|
|Reliance Industries||Mukand Iron|
|Indian Rayon||Guj. State Fertilizers|
|Great Eastern Shipping||Indian Organics|
|Tata Motors||Indian Hotels|
|Larsen & Toubro||ITC|
These were largely industrial companies, the leaders in sectors like metals, chemicals, cement and engineering.
In fact, 27 of these companies were manufacturers. There wasn’t a single technology company or bank.
In July 1990, the Sensex finally reached 1000 points after starting with 100 points in 1979. It reached the 3000 point mark in January 1992.
In December 1991, financial liberalisation happened. The reforms ushered in by the Congress government - at the behest of the World Bank and IMF - led to a dismantling of foreign investment and trade restrictions, a deregulation of capital markets and also made the economy more service-oriented.
The Sensex started the year 2000 at just over 5,400 points and since then has amassed nearly 34,000 points, crossing 10000 points in February 2006 amid a boom in global commodity markets, and 20000 points in December 2007.
Growth slowed down amid the financial crisis and the sluggishness of the UPA-II tenure.
In fact, as a result of the global financial crisis struck, the Sensex went back to 9,328 points by the end of 2008.
However, aided by monetary easing and liquidity support from central banks in developed countries, the index recovered slowly in the years since the financial crisis. It finally crossed the 25000 point mark in May 2014 after the BJP won national elections. The index crossed the 30,000 mark less than a year later and 35,000 mark in January 2018.
As of today, a mere 7 stocks that were on the index at the point of its inception have remained. These are Reliance Industries, ITC, HUL, Larsen & Toubro, Mahindra & Mahindra, Tata Motors and Tata Steel.
But what changed since the Sensex was first compiled?
It incorporated companies from service industries like banking, telecom and IT while scrapping failing ones like Ballarpur Industries, a paper manufacturer whose product sales lagged owing to increasing digitisation, and Great Eastern Shipping.
The rapid development of the information technology (IT) industry in the late 90s and early 2000s saw stocks like Infosys and TCS entering the index, replacing older companies.
More significantly, banks and financial services companies make up a third of the stocks on the index - an indicator of the credit boom that has fuelled private investment and consumption by a rising middle class.
As a result of liberalisation, India’s largest companies are less dependent on domestic sales and have been deriving a larger bulk of their revenues from exports. While companies like Infosys benefitted from the IT outsourcing boom, automobile manufacturers like Tata Motors ventured into developed markets like the UK, closing big acquisitions in the process.
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