Covid 19 Impact: BFSI Weightage In Nifty Slumps To 3-Year Low

Financials, which have had a dominant run in the last decade with a heavy contribution of Banking, Financial Services and Insurance (BFSI) in the Nifty weightage has now slumped.

Here are some interesting highlights from brokerage firm Motilal's Oswal's latest report "Nifty's sectoral representation - Big changes in hierarchy".

1) Financials have had a dominant run in the last decade; contribution of BFSI has risen secularly in the benchmark (Nifty-50) from 22.7% in Dec'09 to 42% in Dec'19 (+1.9x in 10 years). While share of Private Banks/NBFCs in the index has gone up substantially, that of PSU Banks has declined, which highlights the underlying value migration in favor of private financials.

2) However, the recent correction post the COVID-19 crisis has impacted Financials disproportionately given the economy-wide lockdown since the past seven weeks and its potential direct as well as indirect ramifications for loan growth, asset quality and moratorium impact. Financials' loss has been the gain of Defensives like Consumer, Technology, Pharma and Telecom.

After this correction, BFSI's weight in the Nifty is now at 3-year low of 33.9%, down 810bp (v/s Dec'19).

3) While Financials' weight expanded from 35% in Dec'17 to 42% in Dec'19, concurrently, 3 out of 7 stocks added in the benchmark were from the Consumer space (Titan, Britannia and Nestle) in the same period.

4) Oil and Gas (O&G) has seen large increase in weight thanks to the huge outperformance of Reliance. O&G gained 310bp since Dec'19 and now constitutes 15.6% of Nifty. Interestingly, large part of the rally in Reliance Industries (RIL) has been led by developments in Telecom i.e. RJio. After the series of investments from multiple entities in Jio Platforms over the last three weeks, the company is now moving toward becoming debt free. In fact, RJio now constitutes 50% of RIL's SOTP.

5) Consumer's weight in the Nifty has inched up consistently over the last three years and now stands at 12.7% (v/s 9.2% in Dec'17). This is despite the very sharp underperformance by ITC in the last five years. The sector's massive re-rating also underscores the market's overarching preference for high-quality defensives in an era of weak corporate earnings growth in the last decade and several big macro disruptions along the way. After reaching the bottom of just 3.6% weight in the Nifty in Dec'07 - at the peak of the global equity boom - the sector's weight has increased consistently in the last twelve years and expanded 3.5x.