The bull run in equities in the last few years has led to a sea change in the country’s stock markets. New listings coupled with the re-rating of certain sectors have resulted in a dramatic change in India’s sector-wise market cap listings in the past three years.

In August 2004, the top five sectors in terms of market cap were oil and gas, financial, software, health care and metals, which together accounted for more than 65% of the total market capitalization. Those five sectors now account for less than 50% of the current market capitalization.

Barring metals, which maintained its share at about 7%, and banking and finance companies, which increased their share from 11.3% to 13.2%, each of the other sectors in the former Top 5 has lost market share.

The oil and gas sector’s share fell from as high as 25% three years ago to 15.4% currently and the software industry’s share fell from 15% to just 10%, but the health-care segment was the worst hit—its share more than halved from 7.2% to 3.5%.

There are several reasons for the change. One of them is that three years ago, the IT sector occupied pride of place in corporate India. Since then, new sectors, such as telecommunications, have come up. The capital goods sector has seen a surge, as spending on infrastructure picks up and companies add capacity. The net result is that the Indian stock market today is much more diversified than it used to be three years ago. As a consequence, investors today have a much wider range of choices.

Public sector oil companies have been out of favour because their share of the subsidy burden has eroded profitability considerably. Software companies have been battling a rising rupee and wage inflation, which has tempered profit growth estimates. The health-care industry, once touted as India’s great new global challenge after information technology, has been the biggest underperformer in the current rally because growth has barely been commensurate with the risk of losing litigations and the low success rate of new drug discoveries. The industry’s market cap has risen at a compounded average growth rate of 22% in the past three years, while the total market cap has risen by 55%. But it’s a sign of the current boom that the worst performing industry in the past three years has given decent annual returns of 22%.

Another prominent sector that has fallen out of favour is the fast-moving consumer goods sector, which has dropped from the sixth position to occupy 10th rank currently, with an average annual market cap growth of 31%.

The capital goods and telecommunications sectors have seen their share more than double from under 4% three years ago to more than 8% currently. While both sectors have been helped by new listings—for instance, Reliance Communications Ltd and Idea Cellular Ltd in the telecom space; and the likes of Suzlon Energy Ltd and Punj Lloyd Ltd in the capital goods industry— even existing players like Bharti Airtel Ltd, Larsen & Toubro Ltd and Bharat Heavy Electricals Ltd(BHEL) have seen a huge jump in market value. The share of power generation companies has doubled to 4.7% primarily because of the listing of National Thermal Power Corp. (NTPC), which alone accounts for 3.4% of current market capitalization. Excluding NTPC, power generation companies have not only seen their share falling but are also among the worst underperformers in the past three years. The sector that has gained the most from new listings is real estate—its share has risen to nearly 5% currently, from less than 0.1% three years ago. The stock changes in the market capitalization profile don’t reflect well in the Indian market’s barometer, Sensex.

The benchmark index gives a weight of 73% to the top five sectors, even while their weightage in terms of marketwide capitalization is less than 55%. Besides, new sectors such as real estate have no representation.

The BSE 500 reflects a overall better picture because it gives a weight of less than 60% to the Top 5 sectors and gives nearly 14% weight to other industries, besides assigning a weight of 2.5% for real estate companies.

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