ET Wealth Expo | Only 6 of 1990's Sensex stocks survive: S Naren's case for smarter asset allocation

This history matters for investors because the Sensex can continue representing the market even while many individual companies disappear from it. The index’s changing membership makes it a broader, shifting measure rather than a guarantee for every constituent. Investors therefore need to distinguish between owning an index or asset class and relying on one company to recover or remain successful.

These figures show how dramatically benchmark membership can change. A company can lose its competitive position, fall out of an index or cease to exist, while the index itself continues. For investors, the lesson is that past inclusion does not prove future success, and a broad index may be more durable than any one constituent.

The mechanism is simple but important: an index can replace companies as their competitive position, size or market standing changes. An investor choosing one stock cannot assume it will receive the benefit of that replacement process. The history therefore supports asset allocation and caution about treating any individual company as a permanent winner.

The 1990 Sensex provides the warning. Only six original constituents remained in the benchmark over the years, while 24 were no longer members. Some individual companies can still deliver strong returns, but investors cannot assume every beaten-down stock will recover. The forward implication is to assess company-specific risk rather than treating a stock like an entire asset class.

This does not mean every asset class will recover, or that every company will fail after a decline. It means their risks operate at different levels. Naren’s message is to avoid assuming that a fallen stock must mean revert. Broader exposure can reduce dependence on one company, while individual stocks require separate evaluation of their competitive position and survival.

Spreading money across asset classes reduces dependence on one company’s future. It cannot eliminate losses, and it does not guarantee recovery. However, it limits the consequences of a single business failure. The article’s 1990 Sensex history supports this approach: 24 of the original 30 constituents were no longer in the benchmark, while the index itself continued.

Diversification does not guarantee that every investment will recover. It instead reduces the damage caused by one unsuccessful holding. A broad asset class or index can change its exposure as conditions change, while an individual stock cannot automatically replace a lost business. Investors should therefore separate diversification from the belief that every fallen share will eventually rebound.