Market Capitalization of Sensex and Select Scrips A Trend Study Pre & Post Economic Recession Era

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1 Market Capitalization of Sensex and Select Scrips A Trend Study Pre & Post Economic Recession Era Abstract Ch. Chaitanya Associate Professor, Vidyadayini College of IT & Management Mallapur, Hyderabad - India Market capitalization is a measure of a company's size. The investment decision makers use market capitalization figures to make most of the day to day investment decisions. For Investors, it is very crucial to determine the returns and the risk in the shares they want to invest. To assess the returns and the risks in the share, the market capitalization becomes the most important thing helping the investors to choose the stock that can meet their risk and diversification needs. On the other hand, the trends with a Market index market capitalization and a Company s market cap are useful in determining overall direction as a Market and a Company. In the light of the above, the current paper tries to analyze the capitalization of the market i.e. Sensitive Index (Sensex) of Bombay Stock Exchange and Select Sector/Industry scrips during the period which is considered to be the most robust period in the Indian Stock Market. Introduction Market capitalization is a measure of a company's size. It is calculated by multiplying a company's market price by its number of outstanding or publicly floating shares. In India, companies are categorized into three (3) types based on sizes or market capitalization: Large, Medium, and Small. Each one of these comes with varying strengths and risks. The companies with a market value of at least Rs. 10,000 crore or more called large capitalization companies. These are generally well established and stable companies. The companies with a market value of less than Rs. 2 crore are called small capitalization companies. These are considered to have high growth potential, as well as stock prices of these considered to be more volatile. Then comes the third type of companies called medium capitalization companies. These share the characteristics of both large and small capitalization companies and offer investors a balance combining growth potential with anticipated stability. The market capitalization of these companies range between Rs. 2 crore to 10 crore. For Investors, it is very crucial to determine the returns and the risk in the shares they want to invest. To assess the returns and the risks in the share, the market capitalization becomes the most important thing helping the investors to choose the stock that can meet their risk and diversification needs. In the light of the above, the current paper tries to analyze the market capitalization trends of the Market as a whole i.e. Sensitive Index (Sensex) of Bombay Stock Exchange and Select Sector/Industry scrips. The sample stocks include 3 each from 4 Sectors/Industries listed in the below table. Information Technology Tata Consultancy Services (TCS) Ltd. Infosys Limited Wipro Limited Table 1: Select Sample Scrips Listed in BSE Pharmaceuticals Cipla Limited Sun Pharmaceutical Industries Ltd Ranbaxy Laboratories Limited Telecommunications Bharti AirTel Limited Idea Cellular Limited Mahanagar Telephone Nigam limited (MTNL) Fast Moving Consumer Goods (FMCG) Hindustan Unilever Limited (HUL) ITC Limited Nestle India Limited IRJBM ( ) Volume No VIII, February 2015, Issue 3 Page 72

2 The study period is 10 years from i.e. two cycles in the Indian stock market. This period is considered to be highly robust period in the Indian stock market. The research is entirely based on the secondary data sourced from the respective Company and BSE India Websites, Company annual reports, text books, and magazines. The following table summarizes the market capitalization of the Sensex and Select scrips during : Table 2: Market Capitalization (Rs. in Cr.) of Sensex and Select Scrips During Analysis In this section, the research paper focuses on analyzing the trends in market capitalization of Sensex Vs Sector wise scrips. As a first step, the study looks at Information Technology sector. Figure 1: The following chart/figure shows the changes in the market capitalization (Rs. in crores) of the Sensex Vs Select IT scrips with moving 2 month averages during : IRJBM ( ) Volume No VIII, February 2015, Issue 3 Page 73

3 It is clearly evident from the above figure that TCS market capitalization showed a declining trend from year 2006 to Further from 2010, TCS started experiencing a clear upward trend, and from , it moved almost in sync with the market, and outperformed the market in Wipro s market capitalization also showed a declining trend from and inclined in 2010, and furthermore declined in 2011 and is almost stagnant from with slight increase in Infosys market capitalization also experienced declining trend till 2009 and started increasing from 2010 and continuing through Figure 2: The following chart/figure shows the changes in the market capitalization (Rs. in crores) of the Sensex Vs Select Pharmaceutical industry scrips with moving 2 month averages during : The only pharmaceutical sector scrip that always outperformed the Sensex in terms of market capitalization was SunPharma. Further, Cipla and Ranbaxy almost moved in sync against Sensex. Cipla looks to be in better position in terms of market-cap when compared to Ranbaxy but both are not in a comparable position with SunPharma market capitalization during the entire period. IRJBM ( ) Volume No VIII, February 2015, Issue 3 Page 74

4 Figure 3: The following chart/figure shows the changes in the market capitalization (Rs. in crores) of the Sensex Vs Select Telecom industry scrips with moving 2 month averages during : The only Telecommunication sector scrip that outperformed its sample peers is the AirTel. This scrip started witnessing upward trend from the year 2005 and outperformed the market consecutively from The scrip was at its peak in Further from 2010, started witnessing declining trend and almost in the same level till Initially, the other scrip MTNL was in a good position when compared to Idea Cellular as per market capitalization. MTNL started witnessing declining trend from 2009 and continued till 2012, and furthermore in 2013 & by 2014, its market capitalization reduced greatly and almost nullified. The other scrip, Idea Cellular is in the same level from , and in 2009 it declined and remained at the same level till Further, it started witnessing upward trend from 2012 and is continued till Figure 4: The following chart/figure shows the changes in the market capitalization (Rs. in crores) of the Sensex Vs Select FMCG industry scrips with moving 2 month averages during : It is observed that ITC has outperformed the market till the stock split is made; each ordinary share of face value of Rs. 10 of the company was subdivided into 10 ordinary shares of the face value of Re. 1 each, with effect from 28 th September, And then the stock price declined and thereby market IRJBM ( ) Volume No VIII, February 2015, Issue 3 Page 75

5 capitalization come-down in the year This level is maintained till 2012, and it started witnessing growth from HUL has witnessed a gradual growing tread from the year Whereas, Nestle India also witnessed the same trend as HUL but at a lower level. Conclusion The investment decision makers use market capitalization figures to make most of the day to day investment decisions. However, the trends with a Market index market capitalization and a Company s market cap are useful in determining overall direction as a Market and a Company. The study revealed that the period considered i.e involved two stock market cycles and has witnessed wide variety of trends in the market capitalization of sample scrips from the selected sectors. Whereas the Sensex, started witnessing an upward trend from , a down fall in year 2008 due to global economic recession, recouped and continuing a clear upward trend through Also, the study revealed that though the scrips were somewhat adversely affected during the recession times but mostly remained/proved consistent and evolved as representative large cap stocks each from IT, Telecom, Pharma, and FMCG sectors respectively: Tata Consultancy Services Limited, Bharti AirTel Limited, Sun Pharmaceutical Industries Limited and ITC Limited. Specific Web References: IRJBM ( ) Volume No VIII, February 2015, Issue 3 Page 76