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As an Indian investor, you must be familiar with terms like BSE Sensex, BSE 100, BSE 200, BSE 500, BSE All Cap index, etc. These are comprehensive indices created by the BSE to keep track of the overall movements in the stock markets. These indices comprise the top stocks from various sectors to draw a holistic picture of the economy.
Although these indices provide a substantial view of the markets, their use is restricted to the comprehensive view of the major stocks. To better understand the economy, it is important to study the role of different sectors individually before forming any opinion. To tackle this concern, the BSE launched sector indices like the S&P BSE Consumer Durables in 1999, which were a spin-off from the BSE 500 index.
The consumer durables sector is related to goods of daily use that can have a long life. For example, electronic appliances like TV, fridge and washing machine. Usually, the items are expensive and durable. Hence, the name consumer durables. The companies involved in manufacturing or selling consumer durables that also form part of the BSE 500 index are included in the S&P BSE Consumer Durables index.
The number of stocks included in the index is intended to be kept around 10, but the total free-float market capitalisation of these companies should at least amount to 90% (+/-2%) of the total market cap of the consumer durables sector. Hence, the number of shares can vary. Presently, the total number of constituents in the BSE Consumer Durables is 12.
By studying the S&P BSE Consumer Durables Share Price, investors and analysts can understand the consumption trends, which also help to forecast the economy’s future. If the BSE Consumer Durables index rises, it indicates that consumers have enough disposable income and discretion to buy durable goods.
Before choosing a stock to become a part of the BSE Consumer Durables Index, the following points need to be checked:
Once the stocks are selected based on the above criteria, they are ranked using the free-float market capitalisation method. This method considers only those shares for valuation which are available for active trading on the stock exchange. Hence, restricted stocks like the ESOPs or Government owned shares are reduced to arrive at the S&P BSE Consumer Durables share price.
Observe the following example to understand how the free-float market capitalisation of a company is calculated:
Ex: Suppose Company A has issued 5 lakh equity shares in the market, out of which only 80% are freely tradeable. Assuming the current market price of the shares to be INR 100, here is the calculation of the free-float market cap:
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The top stocks that account for almost 90% of the total market capitalisation in the Consumer Durables sector are chosen to become a part of this index with a variable of 2%. Presently, there are 12 constituents in the BSE Consumer Durables index.
After adding up the total free-float market capitalisation of all the constituents, the following formula is used to calculate the S&P BSE Consumer Durables Share Price:
| BSE Consumer Durables Share Price = Total Free-Float Market capitalisation x Index Value for the Base Year / Market capitalisation for the Base Year |
