BSE changes Factor indices methodology

The index is operated by Asia Index, an equal venture between S&P Dow Jones Indices LLC and BSE

The constituent of S&P BSE Factor indices will be decided on the basis of market capitalisation and liquidity from September onwards.

The index is operated by Asia Index, an equal venture between S&P Dow Jones Indices LLC and BSE.

Currently, there is no market capitalisation and liquidity buffer rule applied for the inclusion of scrips in S&P BSE Factor indices.

Factors indices, which measures non-market factors, like momentum, volatility, value and quality of stocks, were launched last year.

The indices S&P BSE Enhanced Value Index, S&P BSE Low Volatility Index, S&P BSE Momentum Index and S&P BSE Quality Index, include top 30 companies each and fall under the umbrella of S&P BSE factor indices.

The changes would be applicable in September, when the rebalancing of the index takes place, according to a circular posted on the BSE's website.

According to the new methodology, current index constituents with a float adjusted market capitalisation of at least Rs 16 billion, an annualised traded value of at least Rs 8 billion and turnover ratio of 16% remain eligible for index inclusion provided they meet the other eligibility criteria.

In the constituents weighting for S&P BSE Quality Index, each company is weighted by the product of its float-adjusted m-cap and quality score, subject to security and sector constraints.

"This is done using an optimisation procedure such that the maximum weight of each security is 5% and 20 times its float-adjusted m-cap weight, the maximum weight of any given BSE sector is 30%. Each stock's weight is floored at 0.05%," BSE said.