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The Indian Stock markets use various indices to study the impact on the overall price fluctuations and future expectations. To go a little deeper into studying the economy, the BSE divides the share categories based on 11 economic indicators. These are called sectors, and to study the impact of each of them individually, BSE uses sectoral indices.
One of these 11 sectoral indices is the BSE Energy index. It includes the stocks of companies that are related to the manufacturing and distribution of renewable or non-renewable energy. While renewable energy companies focus on green sources like solar, wind, hydropower, and biogas to generate renewable energy, the most widely used power sources are non-renewable like coal, petroleum, natural gas, etc.
BSE Energy constitutes the stocks of all such energy companies that are listed on the BSE All p index. All the sectoral indices were launched in April 2015 to start analysing the effect of each sector on the overall market movements. The S&P BSE Energy share price is valued in real-time and is computed in both INR & USD.
Currently, there are 26 constituents listed on the S&P BSE Energy index. The ranking of these stocks on the index is calculated by using the free-float market capitalisation. But this figure is not used to arrive at the index value. Rather, capped market capitalisation is used to calculate the value of the S&P BSE Energy share price.
Annual adjustments are carried out on the index in September, and the constituents are reviewed quarterly in December, March, and June. Energy is the primary fuel that keeps all economic activities running efficiently. Hence, analysts need to study the effect of BSE Energy to understand the future of the economy, especially when the world is on the brink of a potential energy crisis.
As a pr-requisite to get listed on the BSE Energy index, the stocks need to be a part of the BSE All Cap index. Hence, the rules applicable to BSE All Cap stocks are also followed by the BSE Energy constituents.
But, unlike the BSE All Cap index, S&P BSE Energy is valued based on the capped free-float market capitalisation method. Here are the capping rules for the constituents of the S&P BSE Energy index.
Here’s how the capping and redistribution methods work. Consider the following table:
| Company Name | Weights in BSE Energy Index |
| P | 35.00% |
| Q | 20.00% |
| R | 17.50% |
| S | 16.50% |
| T | 11.00% |
| Total | 100.00% |
Clearly, the weight of Company P is more than 33%. Hence, the weights need to be rebalanced by subtracting 2% from Company A and distributing it proportionally among other companies.
| Companies | Original Weight | Calculation | New Weight |
| P | 35.00% | (35 - 2)% | 33.00% |
| Q | 20.00% | (20 + (2 ÷ 65 x 20))% | 20.62% |
| R | 17.50% | (17.50 + (2 ÷ 65 x 17.50))% | 18.04% |
| S | 16.50% | (16.50 + (2 ÷ 65 x 17.50))% | 17.01% |
| T | 11.00% | (11 + (2 ÷ 65 x 11))% | 11.34% |
| Total | 100.00% | 100.00% |
With the above step, the first condition of 33% has been fulfilled, but the second condition is still being breached. So, the rebalancing operation needs to be applied several times to the index to fulfil all the conditions.
The excess weight will be proportionally reduced from the top 3 companies and added to other constituents several times to calculate the value of the BSE Energy index through the capped market cap method.
