August 30, 2015

RIL, ONGC, SBI, BHEL, L&T could be out of Sensex in 10 years

This is wild speculation but I will not be surprised if this happens.

I have seen many bluechip stocks, so called A group stocks fall by the wayside and become shells of their former shining days of crowning glory.

Index heavyweights stocks such as Reliance Industries (RIL), ONGC, Larsen & Toubro (L&T), State Bank of India (SBI) and Bharat Heavy Electricals are among the 15 stocks that could see an exit from S&P BSE Sensex over the next decade, according to a June 2015 study co-authored by Saurabh Mukherjea, CEO (institutional equities) at Ambit Capital, titled 'The Sensex in 2025.'

Besides these five, Ambit also expects Bharti Airtel, NTPC, Mahindra & Mahindra (M&M), Bajaj Auto, Vedanta, Hero MotoCorp, Tata Steel, Hindlaco and Tata Power to get excluded over the next decade. It, however, withheld one name due to internal compliance reasons.

According to Ambit's analysis, Sensex movement over a 10-year window from 1986 to date shows the churn ratio tends to rise when the economy is undergoing irreversible structural changes. Going ahead, it expects the Modi Government to force the next big disruption - dismantling crony capitalism and the subsidy culture, and directing savings away from land and gold to the financial system.

“We expect Sensex churn to rise to 50 per cent in the next decade (2015 to 2025) from historical lows of 27 per cent during the most-recent decadal bucket (2004 to 2014). This means that 15 stocks will be replaced in the Sensex in the upcoming decade,” says Ambit.

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