As an economy grows, the sectoral composition of its GDP undergoes changes. The share of agriculture declines and the share of industry and services increases. There are limits to the consumption of agricultural produce, say food. But there is no limit to consumption of services. Newer services are being invented and people are consuming more and more of these. The increasing share of the services sector is a global phenomenon. Changes in the sectoral composition get reflected in the value of companies too. The following table shows the churn in the top 20 Indian companies by market cap during the last 30 years.
There are important takeaways from the churn. In 1990, all except one in the top 20 were from manufacturing. In 2020, thirteen of the top 20 are from services. Financial services dominate the top 20. There is only 1 PSU in the top 20. RIL has been climbing steadily to the top. Former dominant industrial house – Birlas – does not have even a single company in the top 20. Self made entrepreneurs like Uday Kotak and Sunil Mittal have emerged as major wealth creators. Going forward in the present decade the churn is likely to gather momentum.