Indices

(Source: BSE Website-www.bseindia.com)

The S&P BSE SENSEX is India’s most tracked bellwether index. It is designed to measure the performance of the 30 largest, most liquid and financially sound companies across key sectors of the Indian economy that are listed at BSE Ltd.

Characteristics of S&P BSE SENSEX

Sensex Chart

Sector-Wise Distribution Chart for SENSEX

Sensex Chart

S & P BSE SENSEX Calculation Methodology

The S&P BSE SENSEX is comprised of 30 constituent stocks representing large, well established and financially sound companies across key sectors. It is the oldest index in the country.

S & P BSE SENSEX - Scrip Selection Criteria

Eligible Companies. All common equities listed at BSE Ltd. (excluding companies classified in ‘Z’ group, listed mutual funds, companies suspended on the last day of the month prior to the review date, stocks objected to by the Surveillance Department of BSE Ltd., and those that are traded under a permitted category and SME category) are considered eligible.

Listed History: Stocks must have a listing history of at least three months at BSE, with the following exceptions:

  • An exception may be granted if the average float market capitalization of a newly listed company ranks in the top 10 of all companies listed at BSE. In such cases, the minimum listing history required is at least one month.
  • In the event that a company is listed due to a merger/demerger/amalgamation, a minimum listing history is not required.

Trading Days. The stock must have been traded on every trading day at BSE during the three month reference period. Exceptions may be made in extreme cases, such as stock suspension.

Revenue. Eligible companies must have had reported revenue in the last four quarters from core activities.

Index Construction. Companies meeting the eligibility factors above are ranked based on their average three-month float market capitalization. The top 75 are identified.

All companies meeting the eligibility factors are then ranked again based on their average three-month total market capitalization. The top 75 are identified.

All stocks identified, based on both float and total market capitalizations, are then combined and sorted based on their average of three-month value traded. Stocks with a cumulative value traded greater than 98% are excluded.

The remaining stocks are then sorted by float market capitalization. Stocks with a weight of less than 0.5% are excluded.

All remaining stocks are classified by the sector, and are then sorted in a descending order according to their rank by float market capitalization. These stocks make up the replacement pool to be included in the index, if an existing constituent is removed.

During periodic review, index constituents no longer meeting the float market capitalization, total market capitalization, cumulative value traded, and minimum weight criteria are removed, and replaced with candidates from the replacement pool.

Industry/Sector Representation. Stock selection generally attempts to maintain the index sector weights that are broadly in-line with the overall market.

Constituent Weightings. Every stock is weighted in the index based on its float -adjusted market capitalization.

Understanding Free-float Methodology

What is a Free-float Index?

Full-market capitalization methodology, the total market capitalization of a company, irrespective of who is holding the shares, is taken into consideration for computing an index. However, if instead of taking the total market capitalization, only the Free-float market capitalization of a company is considered for index calculation, it is called the Free-float methodology. Free-float market capitalization is defined as that proportion of total shares issued by the company which are readily available for trading in the market. It generally excludes promoters' holding, government holding, strategic holding and other locked-in shares, which will not come to the market for trading in the normal course. Thus, the market capitalization of each company in a Free-float index is reduced to the extent of its Free-float availability in the market.

Is Free-float SENSEX a new Index?

No. Free-float SENSEX is not a new Index. It is the same old 30 stock Index calculated on a more scientific and globally accepted methodology.

Did the new methodology change the SENSEX value on the day of implementation?

No, there was no change in the SENSEX value due to the change in the methodology. The SENSEX has continued to reflect the market in the same fashion, as it was in the past.

Why should there be a Free-float based Index?

A Free-float based index is regarded as a better benchmark in comparison to a full market capitalization weighted index. It not only reflects the market trends in a more rational manner, but also aids both active and passive investing styles. It aids active managers by enabling them to benchmark their fund returns viz-a-viz an investible index. This enables an apple-to-apple comparison thereby facilitating better evaluation of performance of active managers. Being a perfectly replicable portfolio of stocks, a Free-float adjusted index is best suited for the passive managers, as it enables them to track the index with the least tracking error.

What are the major advantages of a Free-float Index?

  • A Free-float Index reflects the market movements better.
  • It aids passive investment because a Free-float index is easily replicable
  • It improves index flexibility and the resultant market coverage and sector coverage
  • It avoids the undue influence of any closely-held large-capitalization stock on the index movement
  • It is considered as a global best practice in index construction.


Is Free-float a globally accepted indexing methodology?

Internationally, all the major index providers have shifted to the Free-float methodology. MSCI, a leading global index provider, shifted all its indices to the Free-float methodology in 2002. The MSCI India Standard Index, which is followed by FIIs to track Indian equities, is also based on the Free-float methodology. NASDAQ-100, the underlying index to the famous ETF - QQQ is based on the Free-float methodology. FTSE, Dow Jones, S&P, STOXX and other index providers are also using the Free-float methodology.

Are there any Free-float indices in India currently?

BSE TECK Index, launched in July 2001, was the country's first Free-float index. On 16th June 2003, BSE launched BANKEX, a benchmark for the banking sector stocks also based on the Free-float methodology. Subsequetly, SENSEX and all other BSE indices have started using this methodology (except the BSE-PSU index).

How does BSE determine the Free-float factor for each Index constituent?

BSE has designed a detailed Free-float format to be filled and submitted by all index companies on a quarterly basis. (Format is available on www.bseindia.com). BSE determines the Free-float factor for each company based on the detailed information submitted by the companies. Free-float factor is the multiple with which the total market capitalization of a company is adjusted to arrive at the Free-float market capitalization. Once the Free-float factor of a company is determined, it is rounded-off to the higher multiple of 5, and each company is categorized into one of the bands given below. The banding structure reduces the potential of frequent changes in Free-float factors of index companies. A Free-float factor of say 0.6 means that only 60% of the market capitalization of the company will be considered for index calculation.

% Free-Float

Free-Float Factor

% Free-Float

Free-Float Factor

0 - 5%

0.05

50 - 55%

0.55

5 - 10%

0.10

55 - 60%

0.60

10 - 15%

0.15

60 - 65%

0.65

15 - 20%

0.20

65 - 70%

0.70

20 - 25%

0.25

70 - 75%

0.75

25 - 30%

0.30

75 - 80%

0.80

30 - 35%

0.35

80 - 85%

0.85

35 - 40%

0.40

85 - 90%

0.90

40 - 45%

0.45

90 - 95%

0.95

45 - 50%

0.50

95 - 100%

1.00

S&P BSE MID CAP and S&P BSE SMALL CAP

The S&P BSE MID CAP and S&P BSE SMALL CAP indices track the performance of companies with relatively smaller market capitalization. Over the years, the S&P BSE MID CAP and S&P BSE SMALL CAP have proven to be a great tool for the investing community.

Eligible Companies. All common equities listed at BSE Ltd. (excluding companies classified in Z group, suspended companies, stocks objected by the Surveillance Department of BSE Ltd., and those that are traded under a permitted category and on the SME platform) are considered eligible.

Listing History. Stocks must have a listing history of at least three months at BSE.

Trading Days. Stocks must have traded for a minimum of 60% of the trading days at BSE during the three month reference period. Exceptions may be made for extreme reasons, such as stock suspension.

Index Construction. Companies meeting the eligibility factors mentioned above are sorted based on their average three-month total market capitalization. Stocks with a cumulative weight based on their average three-month total market capitalization greater than 98.5% are excluded.

All remaining stocks are categorized into large, mid and small size segments based on 80%, 15%, and 5% total market capitalization coverage, respectively.

  • The S&P BSE MID CAP is comprised of stocks with 80% to 95% of the total market capitalization coverage.
  • The S&P BSE SMALL CAP is comprised of stocks with 95% to 100% of the total market capitalization coverage.

There is no set number of companies; all stocks falling within the parameters of the index make to the final index.

Each index undergoes a quarterly review as per the above criteria, subject to a buffer of +/-3%.

Constituent Weightings. Every stock is weighted in the index based on its float- adjusted market capitalization.

S&P BSE 100

A broad-based index, the S&P BSE 100 represents the top 100 companies listed on the BSE ranked by float market capitalization, value traded, and impact cost.

Eligible Universe. All common equities listed at the BSE Ltd. (excluding companies classified in Z group, suspended companies, stocks objected by the Surveillance Department of BSE Ltd., and those that are traded under a permitted category and on the SME platform) are considered eligible.

Listing History. Stocks must have a listing history of at least three months at BSE, with the following exceptions:

  • An exception may be granted if the average float-market capitalization of a newly listed company ranks in the top 10 of all companies listed at BSE. In such cases, the minimum listing history required is at least one month.
  • In the event that a company is listed due to a merger/demerger/amalgamation, a minimum listing history is not required.

Trading Days. The stock must have been traded for at least 95% of the trading days at BSE during the three month reference period. Exceptions may be made for extreme reasons, such as stock suspension.

Index Construction. All companies meeting the eligibility factors above are ranked based on their average three month float market capitalization, average three -month value traded, and average three month impact cost.

The liquidity rank is computed by assigning a 75% weight to the average value traded rank and a 25% weight to the average impact cost rank.

The final rank is determined by assigning 75% weight to the average float-market capitalization rank and 25% weight to the liquidity rank.

These companies are then sorted based on their final rank. Any existing constituent ranking beyond 200, based on final rank is excluded.

Furthermore, an eligible stock not linked to derivatives trading with a float-adjusted weight greater than 5% of the index is excluded from the index. At the next eligible stock meeting all eligibility criteria are selected for index inclusion based on the final rank.

From the pool of eligible stocks, preference is given to those that are linked to the derivatives market. Eligible stocks linked to the derivatives market are targeted to have an aggregated weight of at least 90% of the index, by float -adjusted market capitalization.

Constituent Weightings. Every stock is weighted in the index based on its float adjusted market capitalization.

S&P BSE 200

The S&P BSE 200 represents 200 large, well-established and financially sound companies across sectors.

Eligible Universe. All common equities listed at BSE Ltd. (excluding companies classified in the ‘Z’ group, suspended companies, stocks objected by the Surveillance Department of BSE Ltd., and those that are traded under a permitted category and on the SEM platform) are considered eligible.

Listing History. Stocks must have a listing history of at least three months at BSE with the following exceptions:

  • An exception may be granted if the average float-market capitalization of a newly listed company ranks in the top 10 of all companies listed at BSE. In such cases, the minimum listing history required is at least one month.
  • In the event that a company is listed due to a merger/demerger/amalgamation, a minimum listing history is not required.

Days. The stock must have traded for at least 90% of the trading days at BSE during the three month reference period. Exceptions may be made for extreme reasons, such as stock suspension.

Index Construction. Companies meeting the eligibility factors listed above are ranked based on the average of three-month total market capitalization, average three month float market capitalization, and average three-month value traded.

Rank Full is determined by assigning a 75% weight to the average three month total market capitalization rank, and a 25% weight to the average of three-month value traded rank.

Rank Free is determined by assigning a 75% weight to the average three month float market capitalization rank and a 25% weight to the average three month value traded rank.

For all companies, Rank Full and Rank Free are added and a Combined Final Rank is determined based on this number.

If an existing constituent has Rank Full and Rank Free greater than 220, it is excluded from the index.

Non-constituent stocks with Rank Full and Rank Free less than 200 are identified and sorted on Combined Final Rank. These stocks are included in the index based on the best Combined Final Rank.

In cases where the number of constituents falls short of the target count, non-constituents with Rank Free and Combined Final Rank, less than 200, are identified and included in the index based on the best Combined Final Rank.

If the constituent count still falls short of the target, non-constituents with Rank Full and Combined Final Rank less than 200 are identified and included in the index based on the best Combined Final Rank.

If the constituent count still falls short of the target, non-constituents with the best Combined Final Rank are included.

Constituent Weightings. Every stock is weighted in the index based on its float adjusted market capitalization.

S&P BSE 500

S&P BSE 500 represents nearly 93% of the total market capitalization on BSE and covers all 20 major industries of the economy. The index is comprised of 500 companies.

Eligible Universe. All common equities listed at BSE Ltd.(excluding companies classified in the ‘Z’ group, suspended companies, stocks objected by the Surveillance Department of BSE Ltd., and those that are traded under a permitted category and on the SEM platform) are considered eligible.

Listing History. Stocks must have a listing history of at least three months at BSE.

Trading Days. The stock must have been traded for at least 75% of the trading days at BSE, during the three month reference period. Exceptions are made for extreme reasons, such as stock suspension.

Index Construction. Companies meeting the eligibility factors listed above are ranked based on average three-month total market capitalization, average three month float market capitalization, and average three month value traded.

Rank Full is determined by assigning a 75% weight to the average three month total market capitalization rank and a 25% weight to the average three month value traded rank.

Rank Free is determined by assigning 75% weight to the average three month free float market capitalization rank and 25% weight to the average three month value traded rank.

For all companies, Rank Full and Rank Free are added and a Combined Final Rank is determined based on this number.

If an existing constituent has Rank Full and Rank Free greater than 550, it is excluded from the index.

Non-constituent stocks with a Rank Full and Rank Free, less than 500 are identified and sorted based on the Combined Final Rank. These stocks are included in the index based on the best Combined Final Rank.

In cases where the number of constituents falls short of the target count, non-constituents with a Rank Free and Combined Final Rank, less than 500, are identified and included in the index based on the best Combined Final Rank.

If the constituent count still falls short of the target, non-constituents with Rank Full and Combined Final Rank, less than 500, are identified and included in the index based on the best Combined Final Rank.

If the constituent count still falls short of the target, non-constituents with the best Combined Final Rank are included.

Constituent Weightings. Every stock is weighted in the index based on its float adjusted market capitalization

S&P BSE GREENEX

The S&P BSE GREENEX includes the top 25 companies with energy efficient practices. The index was co-developed by BSE Ltd with GTrade Carbon Ex Ratings Services Private Limited and the Indian Institute of Management, Ahmedabad, whose mission is to create viable market based solutions for industries, investors and governments, to promote energy efficient practices and encourage impact investing in economically and environmentally sustainable businesses. BSE considers a company’s initiative to offset the carbon emissions, with the offset limit set to two-thirds of the company’s total emissions. The S&P BSE GREENEX is a step in creating a credible market-based response mechanism in India, whereby both businesses and investors can rely upon purely quantitative and objective the performance based signals, to assess “carbon performance”.

Eligible Universe. The S&P BSE GREENEX is formed from the companies in the S&P BSE 100.

Index Construction. Greenhouse gas (GHG) emission numbers are provided by gTrade Carbon Ex Rating Services Private Limited for the eligible universe. The carbon emissions offset is subject to a maximum limit of two-thirds of the company's total emission.

The GHG emission numbers (C), the average of three month float market capitalization (M) & the average three month value traded (T), are scaled from 0 to 100 within the sector.

Points are assigned to the above mentioned parameters from 1 - 50 within the sector.

• For C: For 0-2, 1 is assigned; for 2-4, 2 is assigned, etc.

• For M & T: For 0-2, 50 is assigned; for 2-4, 49 is assigned, etc.

The composite point for a company is arrived by taking the summation of the points multiplied by their respective weights, where C is weighted 50%, M is weighted 40%, and T is weighted 10%. Companies are ranked on the basis of composite points. The top 25 companies are selected for the base composition. The constituents are reviewed semi-annually.

On-going review:

Mandatory Exclusions: If the existing constituent ranks exceed 35 by final rank, the company is excluded.

Mandatory Inclusions: If a non-constituent ranks within 15, the company is included.

For more details, please visit www.bseindia.com.

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