S&P BSE SmallCap

BSE Small Cap

BSE small-cap is one of the indexes of the Bombay Stock Exchange. It is a subset of the S & P BSE AllCap index. It is similar to the BSE Mid-cap index, but, unlike the BSE mid-cap, it tracks the performance of companies that belong to the small-cap category. This article will help you understand S&P BSE small-cap and its calculation.

What is BSE Small Cap Index?

The BSE small-cap has been designed to track and reflect the performance of the companies that come under the category of small-cap stocks. Most of the large indexes focus on tracking the large-cap stocks as they have a greater impact on the market. S&P BSE small-cap index is one of the many indexes that focus only on the growth and performance of small companies in India. This index represents the performance of 15% of the total market cap of the BSE AllCap index. The constituent stocks are first adjusted with the free float factor to find out their float-adjusted market cap and then added up to find the BSE small-cap index value today.

BSE small-cap share prices are volatile and are affected by the market supply and demand. The privately held shares do not have any impact on the stock’s market price. In order to reflect the true position of the stock, only the stocks available for trading in the market are included while doing the calculation. The float-adjusted market cap means the market cap derived by including only freely tradable shares.

The S&P BSE small-cap index consists of 909 stocks, and the current market cap is 4,261,775.46 Cr. The year 1989-90 is being used as the base year due to the price stability and its relevance to the current period.

When was BSE Small Cap Introduced?

The BSE small-cap was launched on April 11, 2005, along with the BSE mid-cap. This was introduced to keep a track of the movement in the BSE small-cap share prices of the small-cap segment of India.

BSE 500 constitutes 93% of the total market cap of all the listed companies. But, the value of the BSE 500 is largely affected by the movement in large-cap stocks, making it difficult to track the small-cap industry distinctively. So a new index called BSE small-cap index was introduced to reflect the growth of small-cap companies.

The companies having a total market cap of less than INR 5000 Cr. are considered small-cap companies. BSE small cap index is rebalanced annually in September and is reviewed on a quarterly basis in March, June, and December. The index value keeps changing as it reflects the position of stocks in real-time.

How are BSE Small Cap Stocks Selected?

Earlier, the stocks to be included in the BSE small-cap index were calculated using the full capitalization method. This method did not present an accurate picture because it considered both privately held shares and freely traded shares. As a solution to this problem and to present a clearer picture of the performance of the indexes, the float-adjusted market capitalization method was introduced in 2003.

How is float-adjusted market capitalization calculated -

Step-1 The BSE small-cap share price is multiplied by the number of shares, and the market cap is derived.

Step-2 The percentage of freely traded shares is found.

Step-3 The market cap is multiplied by the percentage of tradable shares, and the float-adjusted market cap is determined.

Here’s an example -

Tata Steel has 10 lakh shares, and 75% are freely tradeable. The market price of the stock is INR 1000. Here’s how it is calculated -

The float-adjusted market cap is added. The figure derived is divided by the market cap of the base year, i.e., 1989-90, and multiplied by 100.

Here is the formula -

BSE Small-Cap Today = (Total Free-Float Market capitalization)/Base Market capitalization x 100

Criteria for Selecting Stocks

• The constituent stocks should be a part of the S&P BSE AllCap index.
• The company should be a part of the small-cap category.
• The trading duration should be a minimum of 60% in the previous 3 months.