Sensex 2025

In my previous columns I highlighted that the Indian market has the highest 'churn' ratio amongst the world's major stock markets. In particular, over a ten-year period the Sensex churns by around 50 per cent, i.e., of the 30 stocks in the Sensex at the beginning of a decade, only 15 are left by the end of the decade. Interestingly, churn in the Sensex tends to be higher in the wake of major economic reform; during the ten years from 1995-05 Sensex churn rose to 67 per cent. The churn tends to be lower during the periods in which little or no reform takes place (such as the period during which UPA-II was in power when the churn fell to 25 per cent). This process of creative destruction should be of interest to investors because there are outsized returns to be made from buying into companies that will become Sensex constituents over the next decade. My colleagues Gaurav Mehta and Karan Khanna find that whilst the Sensex itself compounds at 17 per cent per annum over long periods of time, entrants into the Sensex - even large-cap entrants which are already in the BSE 100 - compou

This article was originally published on October 09, 2015.