Reliance Industries (RIL) last week missed the historical landmark of hitting the ₹20-lakh crore mark in market capitalisation by a whisker. The Reliance stock touched an all-time of ₹2,917.15, taking the market cap to ₹19.74-lakh crore. To achieve ₹20-lakh crore mark, the stock of Mukesh Ambani company needs to breach ₹2,956, which, according to many market experts, is a matter of time.

There has been no looking back for Reliance Industries ever since it crossed the ₹8-lakh crore market capitalisation in August 2018 and, in fact, within 14 months, the company breached the ₹10-lakh crore mark in November 2019. In another two years, RIL’s market-cap leapt to the ₹15-lakh crore mark.

Currently, RIL is miles ahead of other companies in terms of market-cap. TCS commands a market-cap of ₹14.09-lakh crore, followed by HDFC Bank ₹11.13-lakh crore, ICICI Bank (₹7.19-lakh crore) and Infosys (₹6.87-lakh crore).

Until 2011, there used to be an intense competition among the top 5 companies – Reliance Industries, Infosys, TCS, HDFC and ICICI Bank – to occupy the coveted slot of India’s most valued company. The emergence of Infosys and TCS not only challenged the traditional manufacturing and banking and finance companies but also dominated the capital market since 2000. All these companies’ m-cap were hovering in the range of ₹3-4 lakh crore.

Should one worry over the dominance of Reliance in m-cap and its impact on market, especially on index?

Globally, too, the situation is no different. Both Microsoft and Apple are far way away from the rest. Microsoft became $3-trillion market-cap company recently and toppled Apple ($2.9 trillion approximately) from its No 1 position. Even the market-cap of rest of the “magnificent seven” club (Amazon, Alphabet (Google), Meta Platforms (Facebook), Nvidia and Tesla) are only half of that.

Index weightage

Despite being top market-cap company, Reliance is only No 2 in Nifty and Sensex weightage. After the merger of HDFC with HDFC Bank in July last year, the latter occupies the top slot in the benchmarks. HDFC Bank has a weight of 13.5 per cent in Sensex and 11.6 per cent in Nifty, while that of Reliance is 13 per cent and 10.16 per cent, respectively.

The weightages are automatically adjusted on a daily basis by the exchanges depending on free-float market capitalisation (non-promoter holdings) stocks in a company. Due to the free-float factor, which is higher for HDFC Bank than Reliance, the former scored over the latter in key benchmarks.

When the Nifty weightage was calculated using full market capitalisation, the gap between Reliance and the second largest company in Nifty then (ONGC) was quite wide with the former carrying a weightage of 13.76 per cent followed by ONGC (7.48 per cent) and Bharti Airtel (7.03 per cent). In those days, movements in Reliance single handedly influenced the direction of Nifty and Sensex.

The free-float factor ended the dominance of single company in the index. With crores and crores of rupees riding on exchange traded funds and index funds, the introduction of free-float concept in 2009 was a welcome shift.

However, still the indices are top heavy with top three companies – HDFC Bank, Reliance and Infosys (having 30 per cent weightage) – influencing their movement.

Besides, Reliance has various verticals — from oil to chemical; retail to digital; and textile to new energy. So the m-cap of Reliance is as diversified as index itself.

The gain in market-cap is a reflection of the company’s performance. May be others too will emulate the success formula of Reliance to bridge the gap or even overtake it. Besides, a further increase in promoters dilution by other companies can help their gaining weightage in the index. PSUs such as Life Insurance Corporation of India are potential candidates.