Lions lose their share

Concentration means how much share top companies have in the economy in terms of various parameters. The lower the concentration, the better it is for the economy as it bolsters competition, which in turn improves efficiency, both in terms of cost and productivity. However, over the last 20 years, the concentration in developed markets has increased. Due to slow growth, many companies are looking for inorganic ways to increase growth, which has increased concentration globally.

Just the opposite is happening in India. Concentration has been going down, as new companies emerge and compete with the established players. Improved accessibility, lower prices and more consumer-friendly practices have thus followed. India has also become more competitive on the global scale. The graphs in this article show increasing fragmentation in the economy.

While the share of the top ten Indian companies in the total market cap used to be about 50 per cent during March 1996-March 2002, now the top ten companies make around 25 per cent of the total market cap. Their share has steadily decreased over the years.

The market share of top five banks has also been coming down. While it stands at around 40 per cent in March 2016, it used to be as high as 80 per cent in March 1997. This has proved to be a welcome occurrence for the economy because high concentration in the banking sector can unduly expose the economy to risk.

The revenue contribution of the top ten listed companies in terms of the total revenue of all the listed companies has also fallen over time, but it did show a marked jump between March 2001 and March 2005.
Over time, the control of public-sector enterprises has also loosened in the total market capitalisation. The private sector has become all the more significant.