By Mahavir Kaswa
During the first half of 2018, Asia Index Private Limited launched the S&P BSE Diversified Financials Revenue Growth Index. It is the first index of its kind in India, and it seeks to measure the performance of private (non-state-owned) stocks from the S&P BSE 500 in the finance sector. The index includes the top three quartiles from the eligible universe based on revenue growth criteria as defined in the index methodology. The index is a variable count index; it had 48 constituents as of Sept. 29, 2018. It covers approximately 70% of the S&P BSE Finance in terms of total market capitalization. It is reconstituted semiannually in June and December.
The index offers a diversified exposure to various sub-industries of the BSE Finance sector. As shown in Exhibit 1, the index basket includes 9 banks out of the 38 banks that are part of the S&P BSE Finance. The largest sub-industry in the index is Banks, with a total weight of 30.2% as compared to 63% in the S&P BSE Finance.
As defined in the index methodology, the maximum weight of stocks in the index is capped at 5% with quarterly weight resets. The top 10 stocks in the index account for a total weight of 49.2% as compared to 77.6% in the S&P BSE Finance. As illustrated in Exhibit 2, large cap accounts for a total weight of 61%, whereas the combined weight of large and mid-caps in the index is 93.5%.
Index Performance and Risk/Return Profile
As depicted in Exhibit 4, the S&P BSE Diversified Financials Revenue Growth Index outperformed the S&P BSE Finance and S&P BSE 500 over the 3-, 5-, and 10-year periods studied. Although the index noted higher volatility, the index also noted higher risk-adjusted returns during the same periods.