Zomato will make history on Monday as the first new-age tech stock to be included in the prestigious BSE Sensex, replacing JSW Steel in a half-yearly rebalancing of constituents. This signals a significant shift in the Indian business landscape. While the rejig is routine, the food delivery giant’s inclusion in the club of India’s most influential companies underscores the growing prominence of the digital sector.
Historically, the 30-stock blue-chip index has seen considerable churn. Just eight of the earliest constituents from 1986 are still part of the index. The Sensex underwent a dramatic overhaul in 1996, with 15 of the 30 stocks making way for a new guard. Today, just a third of the companies in the index are old-timers from about a decade ago, and in the past four years, one-sixth of the names have fallen off the list. A long-term analysis of this rebalancing shows the extent of the competition.
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Zomato zooms
Zomato’s inclusion in the index has been fuelled by a relentless rally in its stock. Shares of the Deepinder Goyal-led company have surged 45% in the last six months and 133% in 2024 so far. The Sensex meanwhile has gained just 10% this year. This surge has propelled Zomato’s market capitalisation to ₹2.1 trillion. In contrast, JSW Steel’s stock has risen only 1.1% in the past six months and 5% year-to-date.
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Zomato’s financial turnaround is the engine powering this rally. After swinging into profitability last fiscal year, the company continued its impressive trajectory. In the July-September quarter, consolidated revenue from operations surged 69% to ₹4,799 crore, while net profit leapt five-fold from the previous year to ₹176 crore. This bottom-line improvement came from a consistent expansion of food delivery margins and quick commerce operations nearing break-even.
Index changes trigger portfolio adjustments by global and domestic index funds, which often leads to stock price volatility from the resulting inflows and outflows. According to a note by Nuvama Institutional Equities, Zomato is expected to see inflows of $513 million, while the exclusion of the JSW Steel will lead to outflows of $252 million.
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Economic clout
The Sensex, a barometer of Indian economic progress, has mirrored the country’s transformation. Its growing influence reflects the increasing dominance of its constituent companies in the Indian economy. The combined revenue of these titans accounted for roughly 13% of India’s gross domestic product in 2023-24, up from 10% in 2004-05. In terms of profits, their share rose to 1.7% from 1.2% over the same period.
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However, this also highlights the growing concentration of corporate profits in the hands of these leading enterprises, which perhaps necessitates a nuanced perspective. While Sensex companies drive India’s economic growth and innovation, it is crucial to address potential concerns about their market dominance.
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