Tata vs Agarwal: Will Vedanta replace Tata Steel in Sensex as it overtakes its market cap?

February 2026 marked a symbolic turning point in India’s commodity sector. Vedanta Ltd overtook Tata Steel Ltd in total market capitalisation, surprising many on Dalal Street. Vedanta’s valuation climbed to Rs 2,86,240 crore, while Tata Steel stood at Rs 2,70,206 crore. This raised a natural question: Will Vedanta now replace Tata Steel in the Sensex?

At first glance, it may seem logical. If a company becomes larger in value, it should enter the index. But the Sensex does not work on total market capitalisation alone. It is based on free float market capitalisation. That means only the shares available for public trading are counted. Promoter holdings are excluded from the calculation.

This is where the picture changes. Tata Steel’s free float market capitalisation is around Rs 1.77 lakh crore. Vedanta’s free float stands near Rs 1.23 lakh crore. Even though Vedanta’s total valuation is higher, a larger portion of its shares is held by promoters. As a result, Tata Steel still holds an advantage in terms of liquidity and public participation.

Vedanta’s recent financial performance has been strong. In Q3FY26, it reported its highest-ever quarterly EBITDA of Rs 15,171 crore, up 34 per cent year on year. Its profit after Tax surged 60 per cent to Rs 7,807 crore. For the first nine months of FY26, total income rose 17 per cent to Rs 61,047 crore. The company’s EBITDA margin expanded to 41 per cent, supported by record aluminium and zinc production.

A major driver behind Vedanta’s valuation surge is its proposed five-way demerger, targeted for completion by March 2026. The plan is to create separate, pure play entities for aluminium, oil and gas, power, steel and base metals. Investors believe the individual businesses may be valued higher on their own. This “sum of the parts” expectation, along with a dividend yield of over 6 per cent and improving debt metrics, has boosted investor confidence.

Tata Steel, however, remains a heavyweight in scale and revenue. In Q3FY26, it reported consolidated revenue of Rs 57,002 crore. Net profit stood at Rs 2,689 crore, marking a sharp year-on-year jump due to turnaround efforts and a lower base. For the nine months, EBITDA rose 31 per cent to Rs 24,894 crore, though the consolidated EBITDA margin was lower at 15 per cent.

The company’s India operations continue to perform well. The India business delivered a strong 24 per cent EBITDA margin and crossed 6 million tonnes in quarterly deliveries for the first time. At the same time, Tata Steel reduced its net debt by Rs 5,206 crore in just three months, bringing total net debt down to Rs 81,834 crore. This shows active deleveraging.

Tata Steel is also investing heavily in its European operations. It is transitioning from traditional blast furnaces to Electric Arc Furnaces to reduce carbon emissions. This move prepares the company for stricter environmental rules and future carbon taxes. However, the transition is capital-intensive and weighs on short-term profitability.

The market today appears to favour companies that generate high margins, strong cash flows and immediate shareholder returns. Vedanta fits that profile at the moment. Tata Steel, on the other hand, is playing a longer game focused on sustainability, capacity expansion and structural transformation. These strategies take time to reflect in valuations.

For Vedanta to replace Tata Steel in the Sensex, the gap in total market capitalisation may need to widen significantly. Free float size, liquidity and sector representation also matter in index decisions. If Vedanta completes its demerger, the individual entities may not match the size or liquidity of the current unified company.

For now, Vedanta has won the total market cap race. But Tata Steel still holds a stronger position in terms of free float market capitalisation. As a result, an immediate change in the Sensex appears unlikely. The valuation crown may have shifted, but the index seat remains firmly with Tata Steel.

Disclaimer: The article is for informational purposes only and not investment advice.