The Bombay Stock Exchange’s benchmark 30-stock index, Sensex, has, over the past year, moved more on account of one single scrip, Reliance Industries Ltd (RIL), than the benchmark indices of 13 markets in Asia, Europe and the US.
The diversified Indian conglomerate, which enjoys about 13.8% weightage in the Sensex, has contributed more than 40% of the total gains made by the benchmark index in the past?one?year. That’s more than the contribution of the company whose scrip enjoys the largest weightage in each of the 13 other indices considered.
Indices are meant to be representative of the stock market, and are a proxy for a country’s economy. Their dependance on a single scrip makes them less representative of the larger market.
A stock’s weightage is simply its share of the index in terms of its market capitalization. Some indices such as the Sensex are calculated using free-float market capitalization. RIL had a free-float market capitalization of Rs1.41 trillion on 17 September, while all the Sensex constituents put together had a free-float adjusted market value of Rs10.25 trillion on the same day, giving it a weight of 13.8% in the index.
RIL’s stock price went up about 80% compared with the Sensex, which gained little more than 22% during the past 12 months.
South Korea’s Samsung Electronics Co. Ltd had the opposite effect of RIL on the index of which it was a part. The stock, which lost about 19% in the past one year, dragged down the Kospi.
Fanuc Ltd of Japan, the largest manufacturer of industrial robots, which has the highest weightage in the Nikkei, the benchmark index of the Tokyo Stock Exchange, was the second biggest contributor, accounting for more than 31% of the index’s gains in the past one year. Australia’s BHP Billiton Ltd, the world’s largest mining firm, ranks third in the?list,?contributing more than 22% of the growth of ASX-200.
Other notable contributors among the Asian markets were Singapore Telecommunications Ltd and Telecomunikasi Indonesia Tbk PT. Both the telecom firms enjoy the biggest weightage in the Strait Times and Jakarta Composite, the indices of Singapore and Indonesia, respectively, and contributed just above 10% to their respective indices.
In the US, International Business Machines Corp. (IBM), which has the largest weightage in the Dow Jones Industrial Average (DJAI) contributed about 14% of the index’s gains in the past one year. Oil major Exxon Mobil Corp. contributed more than 9% to the S&P 500 index. While IBM’s stock price rose about 40% in the past one year, Exxon gained more than 33%.
In Europe, another oil major BP Plc., the stock with the highest weightage on FTSE 100, the key European index, dragged down the growth of the index as its stock price slid from last year’s levels by 1.3%.
Similarly, in Asia, Hong Kong’s financial major HSBC Holdings Plc., eroded the gains of Hang Seng, the country’s benchmark index, falling by more than 7% during the past one year. As a result, HSBC’s weightage on the Hang Seng went down from about 25% in September 2006 to the current 14.4%.
The stock price of Industrial & Commercial Bank of China, the world’s largest bank in terms of market capitalization, had gone up by 110% since getting listed on the Shanghai Stock Exchange in October 2006. However, the Chinese benchmark index went up a staggering 212%, during the past one year. The bank’scontribution to this over the past year could not be calculated because it wasn’t listed in 2006.