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Company | LTP | Change | Day Range |
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Sector Name | Advances | No Change | Declined |
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BSE calculates various indices in India, like the BSE Sensex, BSE 100, etc., to study the overall movement in the market. But, the constituents of these indices are a group of stocks that belong to contrasting sectors. Although these indices provide a view of the overall changes in the market, it is hard to calculate the effect of every sector separately. Hence, the BSE launched 11 sectoral indices in April 2015.
The BSE IT index is also a part of these sectoral indices. The rise of India as an economic powerhouse in the 21st century has come on the back of the growing Information Technology industry. With the wide acceptability of the Indian IT sector and the efforts of the government to digitize its activities, understanding the movement of IT stocks is important.
BSE IT comprises all the stocks of companies that provide IT or related services. These stocks are picked from the constituents of the BSE All Cap index. At present, 62 constituents are listed on the S&P BSE IT index. These stocks are ranked based on the free-float market capitalization.
While the free-float method is used to rank the stocks, the market capitalization of the BSE IT constituents is capped to arrive at the final value of the index. This means that there is a maximum weightage that one stock or a group of stocks can hold in the index. The rebalancing of the BSE IT index is carried out annually in September. Although, the status of the constituents is reviewed quarterly in December, March, and June.
With technological advancements, more and more businesses are dependent on IT to power efficient business processes. This creates an enlarged role for the IT sector to play in the growth of an economy, especially the developing economies like India. Hence, it can be helpful for analysts to study the movement of BSE IT to draw inferences about the overall market movements.
For a stock to be considered for listing on the sectoral indices, it must be a part of the BSE All Cap index also. So, all the stocks that belong to IT or related services are picked and ranked based on the free-float market capitalization.
But, to take it a step further, the BSE IT index doesn’t consider free-float market capitalization as the valuation method. Rather it applies a cap on the maximum weightage that a stock can have on the index. Here are the rules for capping the BSE IT constituents and the method of rebalancing.
Consider the following example of 5 constituents:
| Company Name | Weights in BSE IT Index |
| M | 35.00% |
| N | 20.00% |
| O | 17.50% |
| P | 16.50% |
| Q | 11.00% |
| Total | 100.00% |
In the above table, Company M has a higher weight as per the free-float method, which comes to 35%. But, as per the rule, the maximum weight can only be 33%. Hence, the constituents can be rebalanced as follows.
| Companies | Original Weight | Calculation | New Weight |
| M | 35.00% | (35 - 2)% | 33.00% |
| N | 20.00% | (20 + (2 ÷ 65 x 20))% | 20.62% |
| O | 17.50% | (17.50 + (2 ÷ 65 x 17.50))% | 18.04% |
| P | 16.50% | (16.50 + (2 ÷ 65 x 17.50))% | 17.01% |
| Q | 11.00% | (11 + (2 ÷ 65 x 11))% | 11.34% |
| Total | 100.00% | 100.00% |
After the above rebalancing, the new weights cannot be considered the final index weights. This is because the second condition is still not fulfilled, i.e., the maximum weight of the top 3 constituents is 63%. So, further rebalancing needs to be conducted to arrive at the final index figures.
To calculate the BSE IT share price, the excess weights need to be reduced from the top 3 constituents and distributed proportionately among the remaining uncapped constituents.
