Dynamism at work: India’s economy has led Nestle out of the Sensex

While investors brace for potential shock waves from that conflict, a notable change has kicked in at the BSE. With effect from 23 June 2025, Nestlé India, a major fast moving consumer goods (FMCG) company, will no longer be part of its Sensex, a 30-share index that tracks the share prices of large companies actively traded on this stock exchange. 

Nestlé’s exit follows the latest semi-annual reshuffle. Since Sensex inclusion is based on free-float market capitalization, with its stock make-up weighted by the same yardstick, its composition has changed over the decades to reflect changes in India’s economy. 

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Back in 1986, for instance,  it was dominated by industrial stocks; FMCG scrips followed, but it had no bank or infotech shares. All that has now changed. With Nestlé’s exit, only two FMCG businesses—Hindustan Unilever and ITC—remain in that benchmark index. As a result, FMCG stocks that accounted for about 7% of the Sensex prior to Nestlé’s exit will account for only around 6%. A far cry from their 12% share in 2012. 

Such index rejigs are necessary updates. The 30-stock US Dow Jones index, for instance, has been rejigged 59 times since its 1896 inception. Today, it retains none of its original dozen. As countries prosper, the structure of their economy changes, with the services sector’s share rising at the expense of farming and industry. Close to 60% of India’s annual output is now generated by services. Any broad index must reflect this change.

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At one level, therefore, the Sensex rejig is par for the course. Nestlé and IndusInd Bank have been replaced by the Tata retail company Trent and defence public sector unit Bharat Electronics, respectively. This is in line with the economy’s emergence from low to a middle-income status and shifting market perceptions of the relative ability of businesses in various sectors to generate profits—which, in turn, is a function of macro demand patterns. 

Economic development not only transforms an economy’s structure, it also raises income levels. Typically, as households get better off,  a growing share of what they earn is spent on services, notably health, education and transport, even as their share of expenses on food and other essentials shrinks. 

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This is borne out by India’s Household Consumption Expenditure Survey (HCES) 2023-24, which shows that Indian homes spent more on non-food items; among these, conveyance forms a big chunk of their average monthly expenses. In the case of the FMCG sector, market valuation is a reflection of how much income goes into buying regular home products. 

In the case of individual companies, this is juxtaposed with the choice that consumers have. Today, India has as many as 100 FMCG businesses listed for trading, so this sector’s majors of yesteryear no longer dominate the market the way they once did. This impacts their share price and market cap adversely, with inevitable consequences for their index inclusion. 

To the extent that  any stock market—as captured by the Sensex, Nifty, Dow, etc—is taken as a lead indicator  of an economy’s underlying macro fundamentals, changes in index composition should  be seen as a lead indicator of its changing structure. Nestlé’s exit from the Sensex is  a sign of the times to come.