After the latest recast, Sun Pharmaceuticals will be the only drugmaker in the index with a weight of 1.7 per cent as Dr Reddy’s Laboratories is replaced by Vedanta.
ET Intelligence Group: The ability of the Sensex to resist the volatility of the broader market will likely decline as the weight of defensive stocks in the index drops. This will fall to 25.9 per cent after the latest index reconstitution effective Monday compared with 38.7 per cent three years ago, a drop of nearly 1,280 basis points. Against this is the higher weight of private sector banks in the index, which have gained almost 1,030 basis points in the same period. Private sector banks have a 28 per cent weight in the Sensex.
A defensive stock is a manufacturer or service provider of products that remains in constant demand through business cycles. Earnings and dividends remain stable regardless of the state of the overall equity market. Consequently, defensive stocks trade at a premium to cyclical stocks in the long run.
In India, fast-moving consumer goods (FMCG), healthcare and information technology are perceived as defensive stocks. The weightage of these three sectors have been shrinking in the Sensex. The sharpest weight reduction has been in the IT and pharma sectors at 660 and 520 basis points, respectively, in the past three years.
After the latest recast, Sun Pharmaceuticals will be the only drugmaker in the index with a weight of 1.7 per cent as Dr Reddy’s Laboratories is replaced by Vedanta. The weight of the pharma sector will be the lowest in the last eight years, according to a Motilal Oswal report. As for IT, the weight of TCS and Infosys has dropped by 40 and 220 basis points respectively in the past three years. With the inclusion of Vedanta, the metal sector’s weight will increase to 2.6 per cent, a four-year high.
