Stock exchanges are all aggressively expanding their index portfolio, to expand their revenue pie and to standout in the market place. The National Stock Exchange (NSE) and the BSE have introduced host of new indices this year.
Recently, NSE launched a strategy-based index of 30 stocks, while BSE is set to revamp its entire family of indices, starting April.
India Index Services (IISL), NSE's index providing arm, has launched the NSE Quality 30 index - an index comprising the top 30 quality companies, identified on the basis of a quality score.
This quality score would choose companies based on their high return on equity (RoE), low debt-to-equity ratio and year-on-year growth in profit after tax over the last three years, the exchange said in a statement last week.
"The index will be available for the launch of exchange-traded funds and other structured products," said a release from NSE last week announcing the launch of the index.
Earlier in the month BSE's index provider Asia Index Private (AIPL) launched a new set of indices with the introduction of 16 equity indices and will be operational beginning April. These 16 equity indices consists of the S&P BSE AllCap Index family, which will further be divided into five size-based indices, and ten other sector-based equity indices.
The S&P BSE AllCap Index will comprise the S&P BSE LargeCap, S&P BSE MidCap, S&P BSE LargeMidCap, S&P BSE SmallCap and S&P BSE MidSmallCap. These indices are expected to replace the existing S&P BSE 100, S&P BSE 200, S&P BSE 500, S&P BSE MidCap and S&P BSE SmallCap indices.
The 30-share S&P BSE Sensex and the 50-stock CNX NSE Nifty are the two benchmark indices of the Indian equity markets.
"As passive investing grows in India different indices will be demanded to cater to diverse appetites but that does not take away from the popularity and use of existing indices. Sometimes they fill an immediate market requirement and can tap into an appetite for a specific theme based investment tool," said AIPL in response to an email query.
An NSE spokesperson said that index development would now revolve around on strategies rather than just sectors or market-capitalization.
"One of the focus areas for us is strategy indices. Selection of stocks in strategy indices are based on factors such as company fundamentals, statistical parameters such as alpha, beta, volatility etc.... We will continue coming up with new indices suiting the investor needs," said an NSE spokesperson in an email response.
Exchanges are also looking at innovation in stocks within the indices. BSE recently announced the inclusion of shares with differential voting rights (DVRs) into the main indices. At the next index review to be held in June, companies whose DVRs qualify for inclusion will be added to the index. This has led to a spate of activity among companies looking to raise capital without having to dilute their stake, market participants said.
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