33 companies contribute 90% to Nifty50’s profit pool

Over the last decade, 17 stocks have exited the benchmark index Nifty50. Stocks that were removed from the index largely comprised oil marketing companies, and those in materials, utilities, the real estate industry and had a weightage of around 7% in 2012 in the index.

Those were replaced by stocks with earnings and stock price momentum. The new inclusions, are from insurance, NBFC and consumer discretionary industries and have a weight of around 14% in the index, currently.

Interestingly, the newly included stocks trade at a premium to the Nifty50 index. Also, their contribution to the overall profit is not very impressive, shown an analysis by BNP Paribas Securities India Pvt. Ltd.

This analysis looks at the changes in Nifty 50 constituents over the last decade and their likely impact on the Nifty 50 valuation.

“Of Nifty 50 profits (consensus FY23E), 90% still come from companies that have been part of the index for the last decade; new companies on the index account for only 10% of its profits,” said the BNP Paribas report dated 3 August.

Further, of Nifty constituents that have remained constant since FY12 (33 companies), 18 have reported double-digit earnings CAGR over the last decade, of which only 7 have managed over 15% CAGR, it said. CAGR is short for compounded annual growth rate.

Of these seven companies, four are from sectors such as metals, utilities and energy. Reliance Industries Ltd. (RIL), HDFC Bank Ltd, Infosys Ltd, ICICI Bank Ltd and HDFC Ltd are the top five contributors.

The report also highlights that materials, utilities and oil and gas (except RIL) have only around 7% weight in the index, but contribute nearly 25% of its profits. So, that brings down the weighted average.

To conclude, the research house is of the view that newly introduced stocks do not justify a significant re-rating of the Nifty50 index.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.

More Less

Subscribe to Mint Newsletters

* Enter a valid email

* Thank you for subscribing to our newsletter.

.

Back to top button
MONTAGNEDISTRIBUTION