S&P BSE Financial Services

What is BSE Finance?

BSE Finance is a sectoral index on the Bombay Stock Exchange (BSE) which captures the performance of the finance sector in the Indian economy. It is a real-time index of 127 stocks representing the finance sector in the S&P BSE AllCap index. The basic industries eligible to be included in the BSE Finance index are Banks, Insurance, and other Financial Services.

This BSE Finance index was launched on February 25, 2022, with the first value date as September 18, 2020, with base value of 1000. Since its inception, the S&P BSE Finance share price has breached the levels of 7,500 at ~18.69x P/E multiples. The index value is calculated based on free-float capped market capitalisation value, with index stocks capped at 33%.

BSE Finance is reconstituted annually in September, with July’s last trading day as its reference date. Reconstitution involves both company size and sector classification reviews. Investible Weight Factors (IWFs), for calculating free-float market capitalisation, are also reviewed annually- which ignores foreign investment limits.

S&P BSE Finance index is managed and governed by S&P BSE Index Committee set up under Asia Index Private Ltd, which is a joint venture of S&P and BSE Ltd. The BSE Finance index is calculated in two currencies: INR and US$; for US$, spot foreign exchange rates are applied from Refinitiv’s data. 

How is BSE Finance calculated? How are stocks selected for inclusion in BSE Finance?

The BSE Finance share price is computed by weighting its 127 stocks based on free-float capped market capitalisation, using the divisor methodology of the S&P Dow Jones equity indices. In this capped weighted index method, single stocks are confined to a maximum weight of 33%, and the excess weight is distributed proportionately among the remaining index stocks.

The securities must fulfil the following eligibility criteria to be included in the BSE Finance index:

1. Should be domiciled in India and listed on the Bombay Stock Exchange.
2. Should form a part of S&P BSE AllCap index.
3. Should form a part of the Finance sector as per the BSE Sector Classification System.
4. Should include all the eligible share classes of the company.
5. Should have an impact cost of 0.5% or less over the past 6-month period.
6. Should have a trading frequency >80% and a listing history of more than six months.
7. Should have a turnover ratio of at least 5%.
8. Companies that have come out with IPOs must have a listing history of at least one month in order to be eligible for inclusion.
9. Companies that have undergone a scheme of arrangement, namely spin-offs, capital restructuring etc., must have a listing history of at least one month in order to be eligible for inclusion.
10. Companies can be excluded in between the rebalancing dates due to mergers, delisting, takeovers, suspensions, surveillance objections, bankruptcies, or graded surveillance measure (GRM).
11. Should exclude an index stock if its average daily total market capitalisation falls below INR 0.5 billion by the reference date of the last trading day in January.

The index value is calculated as follows –

Index value = Index Market Value / Divisor

Where,

Index Market Value = Price * Shares * IWF (Float Factor) *Fx rate * AWFi

AWFi = Adjusted Stock Market Value factor assigned on rebalancing date

Divisor = Index Market Value after rebalancing / Index Value before rebalancing

The BSE Finance index is reconstituted annually in September, with quarterly reviews being undertaken in the months of December, March, and June for index cap weightings. Single stocks are capped at 33%, while the aggregate weight of the top three constituents is capped at 63%. The stock rankings shall be the same for all the index constituents, whether it is based on their final weights or based on their free-float market cap.