Index providers seeing healthy competition, innovation: Asia Index MD & CEO

Index providers are witnessing a surge in healthy competition, innovation

Underpinning the sharp growth in the passive fund industry are index providers. Asia Index — which recently parted ways with equal joint venture (JV) partner S&P Dow Jones Indices (DJI) — is trying to leverage its parent BSE to boost its presence. ASHUTOSH SINGH, managing director (MD) and chief executive officer (CEO) at Asia Index, in an interview with Samie Modak in Mumbai, talks about the various industry trends and measures taken to arrest the market-share decline. Edited excerpts:

 

How is the landscape for the ‘index provider’ business evolving in India? 

Until 2015, index providers were mostly developing indices that served as barometers of the capital markets overall and, in some cases, constructing narrow indices to reflect the performance of specific sectors. Indices were used in a limited way by secondary market participants and as benchmarks by asset managers.

 

The past 10 years have been seminal for passive investing in India. This is due to a multitude of factors, such as pension flows, the government divestment programme through the exchange-traded fund (ETF) route, regulatory pronouncements around the ‘categorisation of mutual funds (MFs)’ and usage of relevant total return index benchmarks, growing awareness among investors of the cost and transparency benefits of passive investing, and increased interest among Indian investors in smart beta products following their rapid rise in the US.

 

These factors have transformed the role of index providers like us from mere benchmark creators to key enablers for the creation of new investment products.

 

Asia Index has been losing market share to NSE Indices. Why, and how do you plan to address this issue? 

The BSE Sensex continues to be among the most keenly tracked indices of the Indian stock market, both domestically and globally. Further, the Asia Index has launched 15 indices in the past six months. We are simultaneously working on building robust engagement with the asset management industry, which is evident from the recent passive scheme launches on BSE Indices.

 

We will continue to focus on launching relevant indices for market participants based on industry consultations. Market share is the outcome, and we believe the market will reward us — just as it has rewarded BSE in its endeavours — as long as we keep bringing relevant products.

 

How have things changed following the end of the JV with S&P DJI? 

The JV with S&P DJI brought robust systems, index construction methodologies, and governance frameworks. All this stands us in good stead as we leverage the experience and expertise of our parent company, BSE, to accelerate index development and better serve the market.

 

Why would asset management companies (AMCs) opt for Asia Index, where there is already a strong player in the market? 

The capital market ecosystem in the country has developed to a stage where AMCs, insurers, companies, and wealth firms do not choose one firm over the other based on any singular variable, including market share. A case in point is the remarkable turnaround story of BSE in the past two years under the leadership of MD and CEO Sundararaman Ramamurthy.

 

Market participants are choosing based on the value proposition, thus encouraging healthy competition among service providers. Over the past seven to eight months, the traction, encouragement, and support we have received are motivating, as seen in the uptick in BSE index-linked MF launches.

 

What is the assets under management (AUM) of funds tracking Asia Index indices? Have you set any targets? 

The total AUM linked to BSE Indices accounts for over 20 per cent of the passive AUM. There are over 50 equity passive schemes tracking BSE Indices. We are a significant player in the portfolio management services (PMS) industry too, with more than 50 per cent of the PMS strategies in India using our benchmarks.

 

We expect to maintain this momentum with our recently launched indices, such as BSE Sensex Next 30, BSE Sensex Sixty 65:35, BSE Select Business Groups, BSE India Sector Leaders, BSE Internet Economy, BSE 200 Equal Weight, and BSE Select IPO.

 

We are also in the process of expanding our factor family and plan to launch indices focusing on momentum, quality, value, and low volatility within the BSE 500 universe.

 

How do you go about launching new indices? 

Generally, there are two ways we develop our indices — one is by identifying market gaps, studying the current market landscape, and coming up with innovative index offerings. BSE Sensex Next 30, BSE Sensex Sixty 65:35, and BSE India Sector Leaders are examples of this method.

 

The other way is through a market consultation process where we receive initial thoughts and feedback from fund houses. BSE Select Business Groups Index, BSE Capital Markets & Insurance, and BSE Select IPO are some examples of indices developed using this approach.

 

Securities and Exchange Board of India and Reserve Bank of India have made the registration of index providers mandatory. What has triggered this move, and how will it change the landscape for the industry? 

Index providers have evolved to become enablers for investment products like passive ETFs and index funds. The importance of regulatory and governance frameworks cannot be overstated as the number of indices expands, asset categories grow, and innovation becomes a key differentiating factor among index providers.

 

Being regulated will enhance investor and market participant confidence and ensure that index providers build strong compliance and risk cultures across all areas of operation.