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The indices have a base value of 1000 with a first value date of June 20, 2005
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NIHARIKA KULKARNI
Asia Index Private Ltd, a wholly owned subsidiary of BSE, launched four new factor-based indices with quarterly reconstitution schedules on Tuesday, marking a significant shift in India’s smart beta investment landscape.
The new suite includes BSE 500 Enhanced Value 50, BSE 500 Low Volatility 50, BSE 500 Momentum 50, and BSE 500 Quality 50, all drawn from the BSE 500 universe. The indices have a base value of 1000 with a first value date of June 20, 2005.
Smart beta indices
“We are pleased to announce the launch of four new factor indices expanding our suite of smart beta offerings,” said Ashutosh Singh, MD and CEO of Asia Index Pvt. Ltd.
“The introduction of quarterly reconstitution schedule in our factor indexes will enable factor signals to capture the most recent financial and stock price data.”
The quarterly reconstitution represents a significant departure from the traditional six-month rebalancing schedule common in India’s index market. According to Singh, this approach helps distribute trading activity more evenly throughout the year, making portfolio management more efficient.
“What happens in a six-monthly schedule is in one instance they have to churn 80-90 per cent. That’s not evenly distributed. So, managing it for a day becomes more of a headache,” Singh explained during the launch event. “We are kind of distributing that over four time periods so that for the dealer and for the fund manager it becomes easier to manage.”
The indices incorporate liquidity screening to ensure tradability and cap individual stock weights at 4 per cent to prevent concentration risk. They also employ a 40 per cent buffer rule to minimize unnecessary turnover, allowing existing constituents to remain in the portfolio as long as they don’t fall beyond the 70th position in rankings.
Each factor index targets specific investment characteristics. The momentum index follows the principle that investors should “let winners run, however counterintuitive it may be, and don’t try to catch falling knives, however tempting it may be,” Singh noted.
The quality index aims to identify “consistently profitable companies that are resilient and perform well through market cycles,” while the low volatility index focuses on stocks with lower price fluctuations.
Performance data presented at the launch showed factor indices consistently outperforming the parent BSE 500 index over various time periods. From 2005 to 2024, the momentum index beat the parent index 14 times, quality 13 times, and both low volatility and enhanced value 11 times each.
The launch comes as Asia Index approaches its first anniversary as a wholly owned BSE subsidiary after BSE acquired S&P’s stake in their joint venture last year. Singh highlighted the company’s progress, noting they had doubled their client base from about 160 to over 300 in the past ten months.
These indices target both institutional and retail investors, with Singh noting that unlike global markets where factor investing has been primarily institution-led, “in India, it’s been a retail story so far.”
The new indices can serve as the basis for passive investment products like ETFs and index funds, as benchmarks for portfolio managers, or as performance gauges for sectoral investments in India.
Published on May 20, 2025
This article first appeared on The Hindu Business Line
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