The S&P BSE Sensex and the CNX Nifty are the barometers of the Indian equity markets. The top 30 companies in terms of market capitalization constitute the Sensex and in the Nifty, it is the top 50 companies. Did you know that the Sensex and the Nifty have dollar-term versions of themselves?
What are BSE Dollex-30 and CNX Defty?
BSE Ltd’s Dollex-30 and National Stock Exchange’s Defty are indices that are adjusted for exchange rate movements between the dollar and rupee. The constituents remain the same and so do the weightage of the stocks in the indices. These indices were developed by the exchanges to provide a benchmark to foreign institutional investors (FIIs) and off-shore funds, to provide them with an instrument for measuring returns on their equity investments in dollar terms.
“The exchange felt a need to design a yardstick by which these growth values can be measured when the investment and the return are expressed in dollar terms, particularly in the present context of the increased willingness shown by foreign investors and growth in the number of foreign financial institutions in the country”, says BSE on its website.
Foreign investors would find the index useful as it would help measure real returns after providing for exchange rate fluctuations.
The closing values of these indices are calculated using the following formula: (Closing value of index x exchange rate as on base date)/exchange rate for the day. The base year for the Dollex-30 is fixed as 1978-79. BSE will use the average exchange rate of the base year for its computation. For the Defty, the base date is set as 3 November 1995.
Both these exchanges come under the strategy indices of the stock exchanges. On the BSE, it is not just the Sensex that has a dollar version of itself, but the BSE 100 and BSE 200 also have dollar equivalents; called Dollex-100 and Dollex-200.
Relevance of these indices
Indices such as the Dollex and the Defty will be most relevant to those investors who have invested in Indian equities via dollars. Other than FIIs, there are non-resident Indians (NRIs) who invest in equities in India using dollars. Since these indices take into account currency fluctuations, the returns compared with the rupee-term indices will be different.
Sample this: since January 2011, the Sensex has fallen 6.3% and the Dollex-30 by 30.4%. The BSE 200 has fallen 11.27% since January 2011 and the Dollex-200 has fallen 34.1%. And the rupee during this time has depreciated 36.04% (at beginning of 2011, it was Rs.44.67 against the dollar).