S&P BSE Capital Goods

What are S&P BSE Cap Goods?

Contributing to almost 1.8% of India’s overall GDP and 12% of the manufacturing GDP, the capital goods industry plays a crucial role in the nation’s development. The companies involved in the manufacturing of capital goods form a strong base for the country’s infrastructure. Along with its share in the GDP, it has also generated 5 mn + direct employment. Given the importance of the capital goods industry, its performance significantly impacts the overall economic health of the country. 

Capital goods are those goods that are used in creating finished products but are not directly used in the finished product. In other words, the machines and equipment that are used to manufacture other products. For example, a coffee machine that is used for making coffee. The companies involved in manufacturing such equipment are classified as capital goods industries. 

Therefore, tracking the price movement of such companies can provide an overview of the country’s economic health. S&P BSE capital goods index has been designed to track the performance of the companies that are classified as capital goods sector. It includes companies that are involved in the manufacturing of capital goods (used to manufacture products but not used as raw material). The S&P BSE capital goods share price changes with the movement in the stock price. The constituents of this index are selected from BSE 500. 

The BSE capital goods index was launched for the first time on August 9, 1999. The S&P BSE capital goods share price influences the value of the index, and it is calculated in real-time. The index is reflected in two currencies, i.e. INR and USD. Currently, there are 25 stocks on the index and they collectively hold a market cap of INR 329,456.96 million. The market cap of the stocks in the year 1999 is taken as the base market capitalization while calculating the index value. The base year for calculating the index value is 1999. 

The BSE cap goods stocks are rebalanced semiannually in June and December. Float-adjusted market capitalization method is used to calculate the index value. Only the shares available for trading on the exchange are included while calculating the float-adjusted market cap. 

How are S&P BSE Cap Goods Calculated?

The calculation of the BSE capital goods index is based on the float-adjusted market capitalization method, and the market cap is calculated on the basis of the freely tradable shares. Here’s an example to understand it better -

Company Q has 2 lakh shares on the stock exchange. Out of these, only 50% are exchange-traded. The market price of the stock is INR 1000. Then, it will be calculated as follows -

The float-adjusted market cap of all the stocks is added and then divided by the market capitalization of the base year and multiplied with 100 to arrive at the index price. 

Criteria for Selecting Stocks

There are a few conditions that every stock needs to fulfil to be included in the index. Following are the conditions -

• The stocks should be a part of the BSE 500. 
• The average float-adjusted market cap for the last 3 months is calculated and considered while determining the rankings. 
• The stocks should have been traded for a minimum of 90% of the days in the previous three months to be eligible for inclusion.