Tata Motors: In October, Tata Motors created two separate companies by dividing its commercial and passenger vehicle businesses. Since then, there has been a huge decline in the market cap of Tata Motors. The situation is such that Tata Motors, which was once among the top companies of Sensex, is now on the verge of being out of the 30-share benchmark next month.
InterGlobe Aviation, the parent company of the country’s largest airline company IndiGo, can take its place. According to Mcap, it has emerged as the highest ranked non-constituent company. After the demerger in October, the business of Tata Motors commercial vehicles is worth Rs 1.19 trillion, while the mcap of Tata Motors Passenger Vehicles is Rs 1.37 trillion. In comparison, the market cap of Indigo is more than both of them at Rs 2.27 trillion.
Sensex’s old partner Tata Motors
The December review of Sensex is expected by the end of this month, due to which the changes made in the index will become effective after the close of business on December 19. Tata Motors is an old Sensex stock, which has been associated with it since 1986. However, in between the years 2019 and 2022, it has been removed from the Sensex, but was included again.
Sensex was launched on January 1, 1986. Out of the initial 30 stocks of that era, today only 3 stocks are part of it – Reliance Industries, Hindustan Unilever and ITC. Companies like Tata Motors, Tata Steel, M&M and L&T have exited from time to time, which were later rejoined.
What will happen if Tata Motors withdraws from the index?
If Tata Motors is removed from the index, it may come under pressure in the short term as the stock may face outflows of around Rs 2,232 crore. Whereas Indigo may see inflow of around Rs 3,157 crore. If Sensex chooses to increase commodity exposure during this period, then Grasim Industries can join Sensex. Due to this, there is a possibility of passive inflow of Rs 2,526 crore in Grasim. However, Indigo still remains a strong contender.
How does Sensex work?
In Sensex, companies are generally selected from 13 different sectors according to their market cap. The performance of these companies is reviewed twice a year – in June and December. Companies whose shares fall due to weak performance are removed from the Sensex.
This is done so that the top-30 companies included in it are among the well-established companies that boost the country’s economy. The rise in Sensex shows that 30 big companies of the country are moving forward and developing. Due to this, the production capacity of the country is expected to increase and there is a possibility of increase in employment.
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