“The change is welcome but comes a tad late, since from their peak to bottom, the two stocks have already destroyed a lot of value in the index,” said Raamdeo Agrawal, co-founder, Motilal Oswal Financial Services.
According to experts, the weak performance and bleak outlook for the metals sector, particularly for aluminium, copper and iron, have led to a steep erosion in the share prices of both these companies. In the past year, the market capitalisation of Vedanta has fallen by Rs 41,950 crore to Rs 27,616 crore. Hindalco has lost Rs 16,261 crore of its earlier market value, to Rs 15,962 crore.
The BSE 100 index has seen the replacement of NHPC, Jaiprakash Associates and Unitech, with Britannia Industries, Bharti Infratel and Motherson Sumi Systems. Market watchers feel this change reflects the headwinds faced by realty and infrastructure entities. “The share price of Jaiprakash Associates has fallen as it is highly leveraged. Unitech is not as highly leveraged but is part of a sector facing headwinds,” said G Chokkalingam, founder, Equinomics Research & Advisory.
In the past one year, the market cap of Unitech has fallen by Rs 3,116 crore to Rs 1,854 crore. Jaiprakash Associates has lost 4,582 crore, to Rs 3,140 crore. The real estate sector has had weak sales for two years. For instance, the housing market in the Mumbai Metropolitan Region has had its worst half-yearly performance since the financial crisis of 2008, with sales weakening, even as 200,000 units remain unsold, according to property consultancy Knight Frank. New project launches fell 47 per cent in the first half of this year.
As many as 31 companies have been replaced in the S&P BSE 500 index. This includes a number of public sector lenders, such as Jammu & Kashmir Bank, Andhra Bank, Indian Overseas Bank, State Bank of Mysore and Punjab & Sind Bank. “Several PSU banks have not been able to control the growth in their non-performing assets and have been punished by the market,” said Chokkalingam.
According to a recent report from Religare Institutional Research, asset reconstruction sales, 5/25 refinancing and debt restructuring remained elevated for the sector, especially public sector banks, although headline non-performing assets remained under control.
Some notable inclusions in the BSE 200 pack were IDFC, Pfizer, Natco Pharma and Adani Enterprises. BSE Tech has seen a replacement of Persistent Systems and KPIT Technologies by Tata Elxsi and MphasiS. “While information technology firms are not making losses, their profits are now either stagnating or seeing single-digit growth. That has led to contraction in their PE (price to earnings) multiples,” said Chokkalingam.