You must have come across the popular Warren Buffet quote – ‘My favourite time frame for holding a stock is forever.’
Well, after looking at the table above, you may not completely agree with his investing ideology.
As per data compiled by Livemint, the above image shows the change in Sensex (30 stocks) composition over multiple decades since 1998. If you compare the 1998 list with the present day index, a little over half, 17 companies are missing from the index. If you consider the 2008 list, nearly half, 13 companies are not there in the present index.
What happened to these companies?
Before answering that, it is also important to consider the fact that the Indian economy and the stock markets have experienced dynamic changes since the 1990s. The PSU and textile sectors which once dominated the index have been replaced by financial services and IT sectors now.
A closer look at the table reveals that these businesses could not sustain because of at least one of the following reasons:
- Competitive markets
- Not able to re-invent with changing times.
- Corporate misgovernance – scams, frauds.
- Heavy debt burden
- Tepid sales & profit growth
Eventually, many of these companies were taken over by/merged with other companies having strategic/financial interest in the former.
Examples:
- Fearing consolidation and a hostile takeover in the competitive cement industry, ACC and Ambuja Cements were taken over by Holcim, one of the world’s largest cement companies.
- Corporate misgovernance led to Ranbaxy eventually being taken over by Sun Pharma. Ditto was the case for Satyam Computers, DLF and Yes Bank.
- Ballooning debt, competitive tariffs spelled doom for Reliance Communication which filed for bankruptcy. It was later taken over by Mukesh Ambani led Jio.
- Two-wheeler giants like Bajaj Auto, Hero Honda are facing stiff competition and have observed a tepid rise in their sales & profits over the past decade. Even MTNL & NIIT which have not been able to keep pace with changing technologies are facing a similar fate.
Factors like economic moat, significant market shares, huge market potential, do not automatically guarantee sustainability of a business. Further, there is the question of succession planning for many of these behemoths. It is thus imperative to track the significant developments of the businesses in your portfolio. The decision to buy is easy, but the one to sell is the hardest. So, never fall in love with your stocks, as is popularly stated in the world of stock investing.