Introducing The S&P BSE Diversified Financials Revenue Growth Index

by: S&P Dow Jones Indices

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.[1] 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 shown in Exhibit 3, over the past 10 years, the S&P BSE Diversified Financials Revenue Growth Index outperformed the S&P BSE Finance and the S&P BSE 500 by a considerable margin.

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.

[1] http://www.asiaindex.co.in/documents/methodology/methodology-sp-bse-allcap.pdf

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