NIFTY 50: Sectoral Weightage & Trend of Last 10 years

NIFTY 50 Sectoral Weightage – 10 years Analysis

Introduction

What do the changes in NIFTY 50 sectoral weightage indicate? Lets discuss how the sectoral composition of NIFTY 50 changed over the last 10-12 years. The recent sell off in the markets has lead to decline in weightages of many sectors in NIFTY 50.

Changes in NIFTY 50 Sectoral Weightage

Automobile sector

• Automobile sector weightage in NIFTY 50 was at lowest in Dec’08 (2.5%), post that it kept on increasing till 11.8% in Dec’16. After Dec’16, the weightage has again declined to 5.5% in June’20.
• Major contributors in increased weightage are Maruti Suzuki Ltd and Eicher Motors, while Bajaj Auto and Hero Motor Corp weighed back the further increase in weightage.
• Going forward, the weightage of Automobile sector is expected to increase in coming years since it is a cyclical sector and currently its contribution is at the lowest. Thus, it is expected that there will be a reversal in cyclical play and the sector weightage could improve in the coming times.

Banking and Financial Services and Insurance Sector (BFSI)

• Banking sector witnessed a drastic increase in the weightage from Dec’08 to Dec’19. However, the recent fall in banking and NBFC stocks due to weak macroeconomic parameters mainly due to the COVID-19 related lockdown, banking sector weightage has plummeted almost by 11% to 31% in June’20.
• Major contributors in the increase of weightage till Dec’19 are mainly HDFC Bank, Axis Bank, ICICI Bank, Kotak Mahindra Bank and Bajaj Finance.
• In May-June’20, the fall in these stocks was much more than NIFTY 50. However, it is expected that the banking sector weightage will not fall beyond 30% as most of the impact of lockdown is already factored in current market prices.

Capital Goods

• Capital goods sector allocation has gone down from 8.7% in Dec’10 to 2.9% in Jun’20 and it is expected that this will be the capital goods allocation in NIFTY 50.
• L&T is the only contributor in this sector.

Cement

• Cement sector allocation has been cyclical and within a range of 1.5-3%.
• Due to the lack of any dominant player having presence across India (except UltraTech) and presence of many unorganised and regional players, the sector allocation is expected in the range of 1.5-3% in the upcoming times.

Consumer Sector

• Consumer sector allocation has increased from Dec’08 to Jun’20 mainly due to the defensive play and strong performance by FMCG giants like Nestle, HUL, etc.
• This sector is assumed to be a beneficiary of decreasing allocation in other cyclical sectors like automobile, cement, capital goods, etc.

Healthcare Sector

• Healthcare sector increased from 2.6% in Dec’08 to a peak of 6.3% in Dec’16, after which due to unfavourable conditions for mainly pharma companies, the sector allocation reduced to 2.1%.
• However, due to the recent COVID-19 pandemic, there is a revival in pharma sector, resulting in increased allocations from institutional investors.
• In the upcoming times, it is expected that the allocation of this sector will rise till 5%.

Metal Sector

• It is also a cyclical sector. We can see this from the allocations increasing from 4.8% in Dec’08 to 8.4% in Dec’10 and then declining to 2.2% in Jun’20.
• Currently, it seems to be the worst allocation metals sector can get and a cycle reversal is expected from hereon.

Oil & Gas sector

• Oil & Gas allocation declined from the peak of 24.5% to 9.4% in Dec’16. After which, it gradually improved to 16.4%.
• The revival is mainly attributed to the performance of Reliance Industries, as it is still tagged with this sector in NIFTY 50. However, the rally of stock is mainly due to its presence in two segments – Telecom and Retail.

Technology Sector

• Technology sector is one of the sectors which has consistent allocation throughout the period in the range of 12-14% from Dec’10 to Jun’20.
• Going forward this sector is going to have similar allocation in NIFTY 50.

Telecom Sector

• Telecom sector has declined drastically from 11.6% in Dec’08 to 2.2% in Dec’19.
• However, it has seen a revival in June’20 and allocation increased to 3.4%.
• The only stock in NIFTY 50 belonging to this sector is Bharti Airtel.
• After the launch of Jio and due to Price wars, Bharti Airtel’s performance suffered, which is evident from the decline in allocation from Dec’16 to Dec’19. However, now since the competition has stabilised and Airtel’s performance is improving, allocation has again increased to 3.4%.
• Going forward, the allocation will increase since it has already went past the worst phase.

Utilities and Miscellaneous

Utilities sector allocation has declined drastically from 13.3% in Dec’08 to 2.7% in Jun’20. Similarly, miscellaneous sector allocation has remained similar from 3.3% in Dec’08 to 2.9% in Jun’20.

Sector wise weightage in NIFTY 50

• Thus, to summarize the weightage of different sector and future movements,
• We can expect Increase in allocations in following sectors
  • Automobile – already at the bottom of downward cycle, and upward cycle will be seen in upcoming time
  • BFSI – Allocation not expected to go below 30%
  • Healthcare – Pharma reached its bottom in Dec’19 (with allocation at 2.1%) and now it is expected to reverse the cycle mainly due to increasing focus on pharma especially after the COVID-19 pandemic leading to rising stock prices and thus, increased allocation.
  • Metals – Cyclical sector and allocation will increase to 4-4.4%.
  • Telecom – Allocation is going to increase given the improving performance of Bharti Airtel. If Reliance Jio also gets listed, sector allocation will definitely increase.
• Upcoming Decline in allocations in following sectors
  • Consumer – Companies are already trading at rich valuations and there will be some correction in stock prices. Currently, ITC has attractive valuations.
  • Oil & Gas – Current allocation is mainly due to rally in Reliance Industries stock, which is on the back of its Retail and Telecom segment. If these segments get listed separately, allocation will decline in future.