Zomato becomes a part of Sensex 30: Why and How?

When we talk about the Sensex index and the underlying companies, almost every company has a long history in the index. They have been listed for decades. Sensex has companies like Reliance (listed in 1977), HDFC Bank (listed in 1995), and ITC (1974-75) - all with a long history of business and listing.

There is a new addition to the index, and it is something new for the index. On 23 December 2024, Zomato entered the elite BSE Sensex index - it became the first new-age company (startup) to find a place in the index. Let us look at the details.

Sensex Rebalancing

The BSE rebalances its indices, including Sensex, twice a year (semi-annually). Index rebalancing happens once in June and once in December. Here are some factors that determine the addition/removal of stocks from the index:

• Market Capitalization: The primary factor is the free-float market capitalization of the companies. Free-float market capitalization refers to the portion of a company's shares that are readily available for trading in the market (excluding shares held by promoters, the government, and other locked-in shares).
• Liquidity: The trading volume and frequency of the stocks are considered. Higher liquidity ensures that the stocks can be easily bought and sold without significant price impact.
• Sector Representation: The index aims to maintain a balanced representation of different sectors of the economy. It ensures that the Sensex is not overly concentrated in any one sector.
• Financial Performance: While not the primary factor, the company's financial health and performance are also taken into account.
• Listing History: Newly listed companies generally need to have a listing history before they can be considered for inclusion in the Sensex.

Zomato's Entry to Sensex 30

In the last two years, Zomato's share has surged more than 300%. As a result, there has been a rise in the company's market cap. As of 26 December 2024, Zomato's market cap was Rs 2.64 lakh crore - higher than the much-established players like Tata Steel and Asian Paints.

The company that leaves the index to make a place for Zomato is JSW Steel. As per experts, the inclusion of Zomato in the index is expected to draw $513 million in passive inflows. Here are some reasons why Zomato was able to make an entry to the index:

• Increased Market Capitalization: As mentioned above, Zomato's market capitalization had grown sufficiently to meet the criteria for Sensex inclusion.
• Sector Representation: The inclusion of Zomato brought a stronger representation of the technology and internet-based services sector to the Sensex, reflecting the growing importance of these sectors in the Indian economy.
• Meeting Index Methodology: Zomato fulfilled all the other criteria defined by the index methodology, including listing history and financial performance metrics.

Zomato's Financial Performance

Zomato reported a 69% year-on-year rise in consolidated revenue from operations. It reported revenue of Rs 4,799 crore in Q2FY25. Net profit increased fivefold to Rs 176 crore, reflecting strong financial health and bolstering investor confidence. Gross order value from its B2C businesses climbed 55% YoY to Rs 17,670 crore, powered by stronger margins and near-break-even operations in its quick commerce business.

Before you go

Since it entered into the Sensex, Zomato share price has fallen nearly 3% and is trading at Rs 272.80 per share (26 December). Zomato's inclusion in the Sensex signifies a key shift in the composition of the Indian financial landscape, acknowledging the growing influence and market capitalization of new-age, technology-driven startups. This milestone is not merely a symbolic victory for Zomato but a powerful validation of the expanding Indian startup ecosystem.