The Evolution of Indian Indices

A recent stipulation by SEBI for the mutual fund industry outlines how to treat size classifications and suggests that funds need to be very explicit in their stock selection and fund categorization when it comes to stock sizes. SEBI laid down rules for categorizing funds based on component stock sizes and fund houses have to adopt the rules by the first quarter of 2018. Index providers in India have been providing size indices for many years but index selection by asset managers has tended to disregard these criteria in favor of more customized approaches. As investor attention in India has focused more on indices, the natural value that indices bring to investors has grown in importance. Indices provide transparency, rules and a clean structure to the investment landscape and the result can be beneficial for investors.

In India, the quality and design of indices has evolved considerably over time. With the partnership of S&P DJI with the BSE, for the first time the benefits of global indexing standards were brought to the local market. In the last four years alone, Asia index Pvt. Ltd (Asia Index) has launched more than 75 new indices ranging from size, sector, thematic and smart beta. Indices are designed to provide a range of investment choices and Asia index has striven to do just that. On the one hand we have the S&P BSE 30, a liquid investable gauge of the Indian stock market and on the other we also have the S&P BSE AllCap index which is a broad comprehensive index series covering more than 90% of the total market capitalization of the market and is modular with an ability to slice as per size, sector and industry. Similarly smart beta indices for low volatility, value and momentum and other factors are all offerings available to the India investor. Most recently, an ESG (environmental, social and corporate governance) index which selects stocks based on their ESG scores has been launched. Fixed income indices have been available from CRISIL for some time too and have been quite popular with investors.

While the use of indices is just beginning to take off in India, the rapid growth in the number of new index launches from various providers has grown exponentially, with the expectation that markets are maturing rapidly and demand for well-designed and indices will ratchet up. The world of indexing is constantly growing and evolving and the Indian index providers have geared up to match the global pace.

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