Ramesh Pathania/Mint
Ramesh Pathania/Mint

De-jargoned: S&P BSE India Infrastructure Index

It comprises companies from energy, transportation, NBFCs, telecommunications and utilities sectors

Last week, Asia Index Pvt. Ltd, a joint venture between S&P Dow Jones Indices LLC and BSE Ltd, launched its S&P BSE India Infrastructure Index. This index comprises top 30 companies based on market capitalization from five sectors—energy, transportation, non-banking financial companies (NBFCs), telecommunications and utilities. All the 30 stocks in the index will be picked from the universe of S&P BSE 500 index. The idea is to provide an index that will measure the performance of major listed infrastructure companies in India. The other infrastructure index in the country is the National Stock Exchange’s CNX Infrastructure Index.

What’s the selection process?

Globally, an infrastructure index cluster includes energy, transportation, telecommunications and utilities. But in India, Asia Index has included a fifth sector—NBFCs. Only those stocks that fall within these five sectors will be included, and will be further screened. For instance, in the energy sector, only the companies that are involved in oil and gas drilling, equipment, services, storage and transportation can form part of the index. Similarly, in the transportation category, airlines, airport services, highways and railtracks and marine ports and services will be picked. Within the NBFC category, only companies that are classified as infrastructure finance companies by the Reserve Bank of India or companies that get major business revenue from infrastructure finance, are included.

From these eligible stocks, those with an average three-month daily value traded of less than 1 crore are excluded. From the rest, the top 30 stocks by float-adjusted market capitalization (takes into account only the stocks that are readily available for trading), subject to a maximum of 10 stocks per cluster, form the index. In cases where the number of constituents falls short of the target count, the top non-constituent eligible stocks by float-adjusted market cap are added to reach a count of 30. If the count still falls short of 30, the next few non-constituent eligible stocks are added.

Since there are five sectors in the index, the weight of each is capped at 30% sector of the index. For instance, in the index, transportation sector will not have more than 30% weightage on the index. Also each stock in the index will not have more than 10% weightage in the index at any given point of time. Weight caps are applied at each semi-annual rebalancing.

Why was the index launched?

Asia Index believes that investors are going to heavily invest in infrastructure. And since there was a gap as the BSE didn’t have an infrastructure index, a thematic index was launched, which includes NBFCs that earn revenue from infrastructure financing.