We See A Lot Of Scope For Index Trades In India

Standard & Poor's, which has already assured the joint venture its intellectual property and technical know-how to build the indices, will give credibility to the new entity. In an interview, Jack Zwingli, group vice-president, retail division, S&P's, spoke about the index business, and other plans which the company has thought about for its Indian operations.

Excerpts from the interview:

Business Standard: What role do you see for the index business in India? What prompted to you to chose NSE, in particular, as a partner for the venture?

Jack Zwingli: I think with derivatives trading taking shape in India, the index business has a great future in the country. We at S&P's expect to see an increasingly global approach to investing with significant increase in cross-border investing. This is often driven by sector-investing strategies.

We believe that India is an important constituent of the growing emerging markets, and also that options and index bonds will be accepted by Indian investors. This joint venture will have the potential to include Indian index products in the portfolio of global investors.By choosing India as the place for this venture, S&P's is demonstrating our confidence in the future of the domestic markets and in the strength of our two partners.

The reason we chose NSE was simply because it is the market leader, and we believe that it is best positioned to introduce futures and options trading in India.

It is significant to remember that this is the first instance where S&P's has partnered with local companies outside the US to produce an equity index.

BS: How successful is the index business in the US? Being an extremely market sensitive information, what precautions do you take to ensure confidentiality in this business?

JZ: We realise the importance of the business we are in, and also how important it is to maintain confidentiality. It may be of interest to know that when an announcement regarding inclusion of a security in S&P's 500 index is made, the stock gains close to six per cent in the ensuing period. Similarly, when a security is deleted from the S&P's index, the scrip falls close to three per cent. Thus, it is essential to maintain absolute secrecy and this is imbibed in our culture.

S&P's benchmark index, S&P 500, is one of the most successful indices. Over $600 billion of index funds have been constructed on S&P 500, and it is the underlying index on which the largest number of derivative contracts are traded.

BS: We already have an extremely popular index in the form of BSE Sensex. It is not merely popular but is also considered as a benchmark of the market. How do you plan to popularise the new index?

JZ: In developed countries, it is normally the case that only one index gains popularity or some level of acceptance. We believe that with a balanced publicity campaign, we should be able to position our indices as well.

Any index has to be first popular in the domestic market, and only then can it become popular among the international investors.

BS: What are your future plans for the Indian operations?

JZ: We want to strengthen our relationship with Crisil and the NSE. We want to expand into information business, and add value to the services provided by Crisil. At present, Crisil only prepares research reports on individual companies We plan to assign buy-sell recommendations.