BSE BANKEX

What is BSE Bankex?

The Indian stock market compiles various indices representing the health of the Indian economy. While some indices like BSE Sensex, BSE 100, BSE 200, and BSE 500 are comprehensive indices that incorporate stocks from all sectors to depict the entire span of the economy, sector-specific indices like BSE Bankex provide a detailed view of the top banks in India.

The S&P BSE Bankex is a compilation of the top banking stocks that form a part of the BSE 500 list and account for more than 90% of the total market capitalisation of the banking sector. The BSE Bankex index was launched in June 2003 to track the performance of the banking sector.

The indices primarily track the performance of banking stocks, and at present, the top 10 banks in India are the constituents of the S&P BSE Bankex index. These stocks' value and rank in the index are calculated based on the modified market cap weighted method. Unlike indices like BSE Sensex, which calculates the weights based on total free-float market capitalisation, BSE Bankex puts a cap on the maximum weightage of an index constituent, i.e., 22%. The constituents of this index account for 90% of the total banking market cap. A variable of +/- 2% is considered while picking stocks for this index.

How is BSE Bankex Calculated?

The BSE Bankex index includes stocks based on the modified market capitalisation-weighted method. Hence, banking stocks with the highest market capitalisation out of the top 500 companies listed on the BSE are added as constituents to this index.

The constituents of the BSE Bankex are rebalanced in June and December every year. Since the banking stocks picked for the BSE Bankex index are a part of the BSE 500, the same rules apply to these stocks. The criteria for a stock to become a constituent of the BSE 500 are:

• Companies must be included in the BSE All Cap index for at least 6 months
• The stocks should be actively traded for at least 80% of trading sessions on the BSE during the last 6 months
• The average traded value of the companies should be more than ₹1 billion

The banking stocks that form a part of the BSE 500 are then shortlisted based on their ranks. As of today, 10 banking stocks are included in the calculation of the BSE Bankex. But, instead of using weights of free-float market cap, the index uses modified weights.

For example: Banks X and Y have a free-float market cap of ₹15 crore and ₹20 crore, respectively. Assuming that their weightage in the BSE Bankex is 15% and 20%, respectively, and the maximum weight that one bank can hold on the index is 12%, here’s how modified weightage will work.

This method of modifying the weights of the index constituents helps BSE Bankex regulate the influence that a single stock has on the index. It also broadens the perspective and helps investors better analyse the market movements. Currently, the maximum weightage allowed by the BSE Bankex index to one stock is 22%. This is applied to the free-float market cap of all the constituents to arrive at the final index value.

How are Stocks Selected for Inclusion in BSE BANKEX?

• The BSE Bankex universe is part of S&P BSE 500 constituents.
• The constituents of S&P BSE BANKEX are weighted based on their float-adjusted market capitalisation, subject to a 22% weight cap.
• The stock must have a trading frequency of at least 90% in the prior 6 months.
• Constituents are kept, while non-constituents are added based on their average float-adjusted market capitalisation rank to maintain a minimum count of 10 in the index.

BSE BANKEX Scrip Selection Criteria

• Past Listing Requirement: The stock must have a minimum of 3 months of BSE Bankex listing history. The lone exception may be if a freshly listed company's whole market value is among the top 10 on the list of the BSE universe.
• Trading History: During the previous 3 months, the BSE Bankex scrip should have been traded on each trading day.
• Market Capitalisation: To be part of BSE Bankex, the stock must be under the top 100 corporations listed by final rank, which is decided by the 3-month average complete market capitalisation.

How to Invest in BSE BANKEX Stocks?

Investors can make investments in BSE Bankex stocks in two ways:

• You can invest directly in the constituent stocks of the index based on their weightage.
• You can opt for ETF or Index Funds, which track the performance of the BSE Bankex Index.

What are the Benefits of Investing in the BSE BANKEX?

• Investors can get decent exposure to banking stocks as they play a major role in economic growth.
• Investors would benefit from the research done by experts as the banking sector is tricky to understand.
• In addition, risk could be aversed as the investment will be backed by diversification.

History of the BSE BANKEX

On June 16th, 2003, BSE decided to launch a separate index exclusively for banking stocks. The banks' stocks were emerging as a major segment in the equity markets and the Indian banking was on a major recovery both in terms of strength and soundness.

The base date for the index was January 1st, 2002 and the base value was 1000 points. Initially, 12 stocks were part of the index reflecting 90% of the total market capitalisation of all banking sector stocks listed on BSE.