Here it goes-----> BSE-500 Index and Sectoral Indices

vishal1986

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Bombay Stock Exchange Limited has constructed a new index, christened as BSE-500, consisting of 500 scrips in its basket w.e.f. August 9, 1999 (announced on July 8, 1999 vide its press release). The changing pattern of the economy and that of the market have been kept in mind while constructing this index.

BSE-500 index represents nearly 93% of the total market capitalisation on Bombay Stock Exchange Limited. This means BSE-500 index ideally represents total market. This index represents all 20 major industries of the economy. The BSE-500 index had been calculating on a full market capitalization methodology and effective August 16, 2005 calculation methodology was shifted to a free-float methodology in line with SENSEX.

Simultaneously, BSE also started 5 sectoral indices viz. BSE IT Sector index, BSE FMCG Sector index, BSE Capital Goods Sector Index, BSE Consumer Durables Sector Index and BSE Healthcare Sector Index. All these Sectoral indices are calculated and displayed on the BOLT system on the real time basis.

Effective Monday, August 23, 2004 BSE launched “Sector Series (90/FF)” indices with the view to provide the Indian Capital Market with quality sector benchmarks. The “Sector Series (90/FF)” Indices are a set of indices across 9 significant sectors listed on the BSE. They are constructed and maintained as per the global best practices. Existing 5 sectoral indices i.e. BSE IT, BSE FMCG, BSE Capital Goods, BSE Consumer Durables and BSE Healthcare were shifted to Free-Float methodology and have become part of the “Sector Series (90/FF)” indices. BSE BANKEX launched during June 2003 is being calculated on Free-Float methodology and has also become part of “Sector Series (90/FF)”. Three new sectors viz. BSE Auto, BSE Metal and BSE Oil & Gas index were launched effective August 23, 2004 as part of the new series. “90/FF” implies that the index covers 90% of the sectoral market capitalisation and is based on the Free-Float methodology.

Scrip selection criteria for BSE Sectoral Indices :

Eligible universe :
Scrips classified under various sectors that are present constituents of BSE-500 index would form the eligible universe.

Trading Frequency :
Scrips should have a minimum of 90% trading frequency in preceding six months.

Market Capitalisation :
Scrips with a minimum of 90% market capitalisation coverage in each sector based on free-float final rank will form the index.

Buffers :
A buffer of 2% both for inclusion and exclusion in the index is considered so that movements in and out of the index are minimized. Eg. A company can be included in the index only if it falls within 88% coverage and an existing index constituent cannot be excluded unless it falls above 92% coverage. However, the above buffer criterion is applied only after the minimum 90% market coverage is satisfied.

BSE Sector Series (90/FF) Indices:

BSE Auto Index
BSE BANKEX
BSE Capital Goods Index
BSE Consumer Durables Index
BSE FMCG Index
BSE Healthcare Index
BSE IT Index
BSE Metal Index
BSE Oil & Gas Index

Selection of the Base Year and Base Index Value:

The base date has been fixed after a detailed analysis of the relative volatility of BSE-200, the index closest to BSE-500, over the last 8 years. The coefficient of variation of BSE-200 for 1998-99 is one of the lowest in this period. Hence, 1998-99 is chosen as the base year, and within this, the date February 1, 1999 is selected as the base date for its proximity to the current period. The base value was fixed at 1000 points in order to keep the index comparable with other similar indices.

All BSE Sectoral Indices are in a way sub-set of BSE-500 index and 90% coverage in each sector is given from the universe of BSE-500 index constituents.
 
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