The reshuffle of the Footsie

A mere glance at the markets will tell you that the technology sector has all but kicked the bucket, but it somehow takes a reshuffle of the Footsie to make it feel official.

Using the share prices at market close this Tuesday, the FTSE authorities will conduct their quarterly re-organisation of the benchmark indices. On current showing, and unless something particularly miraculous happens, the event is going to be a funeral for all things new economy.

It will be the movements into and out of the FTSE 100 – the Premier League of the London Stock Exchange – that make all the headlines. Taking last week's closing prices, Marconi, Misys, CMG, COLT, and Telewest are all in line for demotion. Eagerly waiting to take their places is a decidedly smokestack selection that includes Severn Trent, Enterprise Oil, Wolseley, Innogy and British Land.

With the notable exception of Logica, whose results last week were good enough to save the shares from annihilation, the above list means that the FTSE 100 will be almost completely purged of the hi-tech stocks that muscled their way in last year. Analysts are already suggesting that this might finally dampen down the crazy volatility that has marked the index's behaviour since the tech companies took hold of its destiny.

The way the technology stocks found their way into the Footsie was certainly impressive. At the height of the 2000 boom, companies capitalised at around £100m found their market values inflated to billions over a few months. Now that the bubble has burst, the decline has been equally sharp.

But relegation to the FTSE 250 index does not guarantee a comfortable life for the top-flight rejects. Once out of the glare of top-flight, many companies have continued to struggle. Apart from anything else, stocks that leave the Footsie lose the share-price some of the support of the index tracker funds that automatically hold a quantity of their stock. "You see these big-name technology companies dropping out of the Footsie and it really is hard to believe they will ever return," says Old Mutual's senior strategist Simon Rubinsohn, "We may well get another technology spending cycle, but these companies will be yesterday's names." Evidence for that will also be on show on Tuesday. At the bottom of the FTSE 250 there waits the possibility of a humiliating descent into the FTSE Small Cap index. That is a route that could well be taken by Bookham, Parthus, Psion, Morse, Thus and Emblaze. For these, the shame is particularly great. These were companies that crowed loudly as they thrust the likes of Rolls-Royce and Hanson out of the Footsie. Now they are grouped with companies that no one, except the penny-share tipsters, has ever heard of.